TORSTAR CORPORATION 2013 ANNUAL REPORT PB
2013
ANNUAL REPORT
OPERATING RESULTS ($000)
2013
2012 (2)
Operating revenue
EBITDA (1)
Operating profit
Net income (loss)
Cash from operating activities
EBITDA – Percentage of revenue
Operating profit –
percentage of revenue
Cash from operating activities –
percentage of average equity
PER CLASS A AND CLASS B SHARES
Net income (loss)
Dividends
$1,308,791
$1,406,768
161,900
11,321
(27,413)
80,732
12.4%
185,742
131,077
82,933
89,835
13.2%
0.9%
9.3%
10.6%
12.6%
($0.35)
$0.5250
$1.03
$0.5188
Price range (high/low)
$8.36/$5.20
$11.30/$6.56
FINANCIAL POSITION ($000)
Long-term debt
Equity
$175,898
$178,027
$796,784
$723,680
The Annual Meeting of shareholders will be held Wednesday, May 7, 2014 at The Westin Harbour Castle Hotel,
1 Harbour Square, Toronto beginning at 10 a.m. It will also be webcast live on the Internet.
OPERATING REVENUE ($MILLIONS) (2)
OPERATING PROFIT ($MILLIONS) (2)
09
10
11
12
13
1,451
1,484
1,549
1,407
1,309
09
10
11
12
13
95
11
131
INCOME (LOSS) PER SHARE (2)
EBITDA ($MILLIONS) (1) (2)
0.45
09
10
11
12
13
(0.35)
2.65
2.74
1.03
09
10
11
12
13
192
186
162
186
190
250
242
(1) Consolidated operating profit, as presented on the consolidated statement of income, which is before charges for interest and taxes adjusted for depreciation and
amortization of intangible assets. It also excludes restructuring and other charges and impairment of assets. Please see “Non-IFRS Measures” on page 39.
(2) 2012 is restated for the impact of the adoption of IAS 19R, IFRS 11, IFRS 12 and IAS 28; prior periods have not been restated. 2009 is based on Canadian GAAP and is
not restated to IFRS.
This annual report contains forward-looking statements within the meaning of certain securities laws, including the “safe harbour“ provisions of the Securities Act (Ontario).
We caution readers not to place undue reliance on these statements as a number of factors could cause our results to differ materially from the beliefs, targets, outlooks,
expectations, goals, estimates and intentions expressed in such forward-looking statements. Additional information about these factors is contained on page 8.
under the heading “Forward-Looking Statements”.
TORSTAR CORPORATION 2013 ANNUAL REPORT 2
TORSTAR CORPORATION 2013 ANNUAL REPORT 3
M E S S A G E F R O M T H E C H A I R
John Honderich
Chair, Board of Directors
It has been a year of economic challenge for Torstar, but also one of unparalleled publishing excellence.
The economic headwinds combined with the relentless challenges presented by the new digital era certainly made 2013 a
daunting year financially. Yet we remained Canada’s most-read weekday English-language newspaper company, Canada’s leading
community newspaper group and one of the world’s leading publishers of books for women.
Torstar has always prided itself on the quality of its work. It seems even in the toughest of times, we buckle down and excel at
what we know how to do best. At Harlequin, 61 of our books appeared on The New York Times bestseller lists for a total of 195
weeks. Four of those titles won the coveted number one spot. And Harlequin was named Mass Market Publisher of the Year in
the United States. At Metroland Media Group, the company’s community newspapers won 129 Local Media Association (LMA)
editorial awards, the highest across North America. The Waterloo Region Record won first place in the daily newspaper category.
On the advertising and marketing side, Metroland won 38 LMAs, again leading all media companies in North America. At the
Toronto Star, the paper showed extraordinary leadership and courage in its ongoing coverage of Toronto Mayor Rob Ford. It also
won four National Newspaper Awards and was nominated for the prestigious Michener Award in Public Service Journalism.
Finally, Torstar’s The Grid, a weekly city publication published in Toronto, was named one of the best designed newspapers in the
world by the Society for News Design.
In a world where quality content is so critical, Torstar stands out for its publishing excellence. This provides a critical strategic
advantage for Torstar as we continue to compete in a very competitive environment.
2013 also marked the departure of Donna Hayes, Harlequin’s Publisher and Chief Executive Officer. After 28 glorious years with the
company, 12 of them at the helm, Ms Hayes decided to retire. She was replaced by veteran Harlequin executive Craig Swinwood,
who took over in December. As part of a restructuring, Torstar Digital was absorbed by other divisions, with President Chris
Goodridge returning to corporate headquarters in charge of several digital operations. At the top, President and Chief Executive
Officer David Holland and Chief Financial Officer and Executive Vice-President Lorenzo DeMarchi continued to provide the critical
strategic thinking and steady hand on the corporate tiller required in such difficult times. Ian Oliver, President of Metroland Media
Group, enriched the consolidation of Metroland as Ontario’s premier community newspaper company. Finally, John Cruickshank,
Publisher of the Toronto Star and President of Star Media Group, carried on with the innovative transformation of operations at
Canada’s largest newspaper.
As the economic times have toughened, so has the need to trim cost, realign and restructure. One of Torstar’s greatest assets is its
workforce of more than 6,000 employees. The dedication, sense of innovation, and professionalism shown by this group is simply
amazing. Despite all the outside pressures, they prove day in and day out why we remain so competitive and so highly regarded.
Given the downward trends, we have continued to scrutinize carefully how we operate and where we can do things differently. This
has resulted in some tough decisions on downsizing across the company. To those who have left, we salute your contribution and
recognize your significant contribution to the company.
Torstar is also served by an exceptional and inquisitive Board of Directors. Throughout the year, they have brought a collective
insight, wisdom and strategic perspective to our discussions. 2013 also marked the last full year of board service for Don Babick,
one of Canada’s true newspaper icons. Don has served as Publisher for many of Canada’s leading newspapers, including a stint
as interim Publisher of The Star. Mr. Babick has served for 10 years on the Board, always bringing his trademark savvy, wit and
extensive experience to every discussion.
190
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T O O U R S H A R E H O L D E R S
David Holland
President and Chief Executive Officer
Torstar’s evolution continued in 2013 with increasing emphasis on
publishing across multiple platforms. The operating environment
continues to be challenging in the newspaper industry and change
continues in the book publishing industry. We were encouraged by
the earnings performance of our media operations and the meaningful
improvement in the condition of our pension plans in 2013. Harlequin
continues to make the necessary adjustments to succeed in the more
digital environment. The strength of our financial position enables us to
take the long-term view in the best interest of our shareholders.
OPERATING RESULTS
Segment EBITDA of $173 million was down $29 million from $202
million earned in 2012. Segment revenue was $1.38 billion, down 7%
from $1.49 billion in the prior year. Media Segment EBITDA of $131
million was down $8 million. Harlequin’s EBITDA was $56 million, down
$21 million from the previous year.
Torstar remains in a strong financial position and made further progress
in reducing debt in 2013. Net debt at the end of 2013 was $159 million,
down $4 million from the end of 2012. We also continued to take steps
to improve the condition of our employee pension plans by making
significant contributions to lower their deficits. These contributions in
combination with rising interest rates and good investment returns have
resulted in a major improvement to the condition of the pension plans.
The strength of this financial position allows Torstar to take the long-term
view, making investments in areas of opportunity that will be critical to
our future and taking steps on the cost base necessary to our continued
transformation.
As in past years, Harlequin proved to be a major contributor in 2013 to
Torstar’s results.
Although revenue and earnings were down, Harlequin’s management
team remained focused on executing against its strategy including
expanding on its position in digital publishing, building its single title
franchise and diversifying the publishing program.
In the year, Harlequin had total segment revenues of $398 million. This
was down $29 million from 2012. In North America, the decrease in
revenue was due to declines in the retail print and direct-to-consumer
channels. Overseas, growth in digital was not sufficient to offset print
declines. As well, revenues continued to be affected by challenging
economic conditions, particularly in Europe.
In 2013, Harlequin enjoyed an excellent year for bestsellers. A total of
61 books appeared on The New York Times bestseller lists for a total
of 195 weeks, including four books that reached the number one spot.
An indication of the success Harlequin is achieving in extending its
publishing into non-fiction was JJ Virgin’s The Virgin Diet, which spent 24
weeks on The New York Times bestseller list. Harlequin also successfully
secured all its top authors through 2016 and signed an unprecedented
70 new authors to series.
Harlequin is a world-class publisher and its management team remains
focused on providing great reading entertainment to women around the
world.
Complementing our global Harlequin operation is our Canadian media
business. We are extremely proud of the role our media operations play
in the communities they serve. Our geographic coverage is diverse.
Our media operations include the Toronto Star, our flagship, the largest
daily newspaper in Canada, the award-winning Metroland community
newspapers with operations throughout Ontario, and the Metro English
newspapers in cities across Canada.
We made considerable progress in 2013 on the cost base, a necessary
element of the continued transformation of the media division. This
cost reduction combined with investment in areas of opportunity should
enable us to take advantage of the new opportunities ahead for both
our print and digital businesses. We have made these changes while
ensuring the high quality of publishing and services that our readers and
our advertisers have come to expect from Torstar is maintained.
In the Canadian Media division, segment revenues of $984 million were
down 7% in 2013, largely because of print advertising declines at our
newspapers. On a more positive note, distribution revenues were up in
the year and multi-platform subscriber revenues were stable. As well,
while digital profitability was up, digital revenues were down 6% due
primarily to lower revenues at WagJag and Workopolis, offset partially
by growth in local digital revenue at thestar.com and revenues at other
digital properties including eyeReturn Marketing and Olive Media.
Our Canadian Media division is comprised of Metroland Media Group
and Star Media Group.
Metroland Media is one of the country’s premier community publishing
companies, publishing in print and digital in three daily and more than
110 community newspapers across Ontario. Over the years, Metroland
has evolved into a highly diversified division, with an emphasis
on continuous innovation to satisfy its readers and advertisers. In
addition to publishing of newspapers and their associated digital sites,
Metroland also has operations in flyer distribution, magazines, specialty
publications, consumer shows, commercial printing, directories and
numerous digital businesses.
Metroland Media was affected in 2013 like many other newspaper
publishers by continuing declines in print advertising revenues. Overall,
Metroland Media saw its revenues decline 8% to $510 million, including
an $18-million drop in revenue from Metroland Media Group’s TMGTV,
primarily attributable to lower product sales. Metroland Media’s
EBITDA was $71 million, down from $75 million in 2012, a very solid
accomplishment in a tough environment.
During 2013, Metroland focused on building on its longstanding strength
in providing distribution services across its Ontario platform and evolving
their digital offerings, forming the Metroland Digital Commerce group
by bringing together the WagJag business and the digital flyers and
coupons business of Save.ca. Also, Metroland continued to stay strongly
connected to its communities through its unique position in providing
relevant local coverage and information, both in print and digitally.
Star Media Group, which includes the Toronto Star, Metro, Sing Tao, The
Grid, the Kit and many of our digital properties, also was affected by drops
in print advertising revenues. Revenues declined $32 million, or 6%, with
print advertising revenues down 13% at the Toronto Star, partly offset by
growth in local digital advertising. At our Metro newspapers, declines in
Ontario markets were partly offset by growth in certain markets in western
Canada and recent expansion markets. Star Media Group EBITDA was
$60 million in 2013, down $3 million from 2012 as an excellent effort on
cost control was nearly sufficient to offset the revenue decline.
Digital revenues from Star Media Group properties increased 2.0% in
2013, reflecting revenue growth in eyeReturn Marketing, Olive Media and
local digital revenue at thestar.com, partially offset by lower revenue from
Workopolis.
During the year, we completed a reorganization of the media operation.
We transferred Torstar Digital’s Commerce operations, including the
WagJag business, to Metroland Media. Olive Media was transferred
into Star Media Group. The remaining operations and investments,
eyeReturn Marketing and our interests in Workopolis, Tuango, Kanetix,
Teamsnap and Golden Ventures all now report into Chris Goodridge,
Senior Vice-President, Digital Ventures at Torstar corporate.
Torstar Digital was created in 2005 and the organization benefitted greatly
from the innovation demonstrated and the dedication of its employees.
Much has changed since 2005. Torstar’s media operations are uniformly
embracing their multi-platform future. The reorganization is a part of our
evolution and has simplified structure, improved alignment and enabled
improvement of execution of strategy.
As in past years, our newspapers and digital properties were recognized
for their outstanding editorial, advertising and marketing efforts.
The Toronto Star received widespread praise and admiration for its
ground-breaking investigative coverage of Toronto mayor Rob Ford,
which received international recognition. The paper also captured four
prestigious National Newspaper Awards and was nominated for the
Michener Award in Public Service Journalism. Metroland newspapers
won a total of 129 editorial awards presented by the Local Media
Association, the highest number of any newspaper organization in North
America. Among the winners were the Waterloo Region Record, which
captured the Newspaper of the Year award, and the Mississauga News,
which was named Best Overall Local News Site. In addition, Metroland
newspapers won 38 Local Media Association awards for advertising and
marketing. Also, The Grid, a weekly city paper published in Toronto, was
once again named one of the best designed newspapers in the world by
the Society for News Design.
Torstar also has minority investments in associated businesses, including
a 23-per-cent interest in Blue Ant Media Inc., an independent media
company led by media veteran Michael MacMillan. We were pleased with
Blue Ant’s performance in 2013 and remain confident in the company as
it focuses on growth opportunities moving forward.
In addition, Torstar has a minority investment in Black Press, a company
well led by David Black that publishes more than 150 newspapers,
including weeklies, dailies and shoppers in Canada and the U.S.
LOOKING FORWARD
As we saw in 2013, Torstar’s businesses are facing challenging times
as the behavior of audiences and advertisers continues to evolve. The
challenge of adapting to change is not unique to Torstar, and is being felt
by publishing companies around the globe.
We are confident, though, that Torstar has the strength and diversity of
operations, with more than 100 respected brands, to successfully adapt
and meet the challenges that will confront us in the future.
We expect print advertising revenues to continue to be under pressure in
2014. However, digital revenue and distribution revenue are expected to
grow. Multi-platform subscriber revenues should be stable. The media
segment will benefit from the ongoing effort to restructure, lower defined
benefit pension expense and lower newsprint costs. At Harlequin, we
continue to make the adjustments necessary to succeed in the more
digital environment. We expect Harlequin results to be relatively stable
compared to 2013, including the positive benefit of foreign exchange,
given the depreciation of the Canadian dollar.
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Digital revenues from Star Media Group properties increased 2.0% in
2013, reflecting revenue growth in eyeReturn Marketing, Olive Media and
local digital revenue at thestar.com, partially offset by lower revenue from
Workopolis.
During the year, we completed a reorganization of the media operation.
We transferred Torstar Digital’s Commerce operations, including the
WagJag business, to Metroland Media. Olive Media was transferred
into Star Media Group. The remaining operations and investments,
eyeReturn Marketing and our interests in Workopolis, Tuango, Kanetix,
Teamsnap and Golden Ventures all now report into Chris Goodridge,
Senior Vice-President, Digital Ventures at Torstar corporate.
Torstar Digital was created in 2005 and the organization benefitted greatly
from the innovation demonstrated and the dedication of its employees.
Much has changed since 2005. Torstar’s media operations are uniformly
embracing their multi-platform future. The reorganization is a part of our
evolution and has simplified structure, improved alignment and enabled
improvement of execution of strategy.
As in past years, our newspapers and digital properties were recognized
for their outstanding editorial, advertising and marketing efforts.
The Toronto Star received widespread praise and admiration for its
ground-breaking investigative coverage of Toronto mayor Rob Ford,
which received international recognition. The paper also captured four
prestigious National Newspaper Awards and was nominated for the
Michener Award in Public Service Journalism. Metroland newspapers
won a total of 129 editorial awards presented by the Local Media
Association, the highest number of any newspaper organization in North
America. Among the winners were the Waterloo Region Record, which
captured the Newspaper of the Year award, and the Mississauga News,
which was named Best Overall Local News Site. In addition, Metroland
newspapers won 38 Local Media Association awards for advertising and
marketing. Also, The Grid, a weekly city paper published in Toronto, was
once again named one of the best designed newspapers in the world by
the Society for News Design.
Torstar also has minority investments in associated businesses, including
a 23-per-cent interest in Blue Ant Media Inc., an independent media
company led by media veteran Michael MacMillan. We were pleased with
Blue Ant’s performance in 2013 and remain confident in the company as
it focuses on growth opportunities moving forward.
In addition, Torstar has a minority investment in Black Press, a company
well led by David Black that publishes more than 150 newspapers,
including weeklies, dailies and shoppers in Canada and the U.S.
LOOKING FORWARD
As we saw in 2013, Torstar’s businesses are facing challenging times
as the behavior of audiences and advertisers continues to evolve. The
challenge of adapting to change is not unique to Torstar, and is being felt
by publishing companies around the globe.
Building on our strengths and our willingness to continually adapt will
allow us to better compete and build value in the years ahead.
Our strengths include the diversity of our operations, from our daily and
community newspaper operations across Canada to our global book
publishing business; our commitment to the value of quality content and
connection to the communities in which we operate; our enduring and
trusted brands in every area of our business, including Harlequin and
across our media operations; our expanding digital operations, which
is an area we are committed to investing in and succeeding in; our
ambition to be a progressive media company that will be innovative in
taking advantage of the breadth of assets at our disposal; our financial
strength; and, finally, the depth and quality of the talent throughout our
many businesses.
I feel fully confident in our future because of these strengths.
OUR GREATEST STRENGTH – PEOPLE
At Torstar, we have always been privileged to have talented and dedicated
employees across all our divisions.
At Harlequin, Donna Hayes, one of the world’s top book publishing
executives, announced she was retiring effective December 31, 2013,
after 28 years with the company. She guided Harlequin with distinction
in 2013 in what was another year of rapidly evolving transition in the
publishing industry. Her commitment to the company, the employees
and the Harlequin authors throughout her career was always exemplary.
We thank her deeply for all of her many contributions. As part of the
succession planning process, Craig Swinwood became the new Publisher
and CEO starting January 1, 2014.
Craig Swinwood is a natural successor to Donna Hayes. Since joining
Harlequin 26 years ago, he has served in a variety of progressive sales and
marketing roles, most recently as the Chief Operating Officer, responsible
for North America. During his career at Harlequin, he has played a key
role in the growth of the single title business, the development of the
Harlequin non-fiction and teen strategies and has been a driving force in
the transition from print to digital publishing in North America.
At Metroland Media Group, Ian Oliver is demonstrating why he is one of
the most respected community newspaper executives in North America.
His embracing of change and commitment to continuing to strengthen
connection to the communities in which its publications operate
across platforms are evidence of his vision for the community media
organization of the future.
At Star Media Group, John Cruickshank is providing outstanding
leadership as he continues to lead the necessary transformation of the
Toronto Star as it adapts and capitalizes on the opportunity in its multi-
platform future. He is also positioning the growing Metro franchise and
other properties in the Star Media Group for sustained success in the
future.
We are confident, though, that Torstar has the strength and diversity of
operations, with more than 100 respected brands, to successfully adapt
and meet the challenges that will confront us in the future.
At the corporate office, Lorenzo DeMarchi, our Executive Vice-President
and Chief Financial Officer and an experienced and committed team
continue to make invaluable contributions to the Torstar organization. I
thank them for all their support.
We expect print advertising revenues to continue to be under pressure in
2014. However, digital revenue and distribution revenue are expected to
grow. Multi-platform subscriber revenues should be stable. The media
segment will benefit from the ongoing effort to restructure, lower defined
benefit pension expense and lower newsprint costs. At Harlequin, we
continue to make the adjustments necessary to succeed in the more
digital environment. We expect Harlequin results to be relatively stable
compared to 2013, including the positive benefit of foreign exchange,
given the depreciation of the Canadian dollar.
I would also like to thank John Honderich, our Chair, and all the members
of the Board of Directors for their support and wise counsel during the
year.
I would also like to acknowledge the support, hard work and dedication
of the more than 6,000 Torstar employees as we continue to take the
necessary, and often difficult, steps forward in the evolution of Torstar.
Because of their commitment and passion to succeed, I remain fully
confident in Torstar’s future for years to come.
Our media operations include the Toronto Star, our flagship, the largest
daily newspaper in Canada, the award-winning Metroland community
newspapers with operations throughout Ontario, and the Metro English
newspapers in cities across Canada.
We made considerable progress in 2013 on the cost base, a necessary
element of the continued transformation of the media division. This
cost reduction combined with investment in areas of opportunity should
enable us to take advantage of the new opportunities ahead for both
our print and digital businesses. We have made these changes while
ensuring the high quality of publishing and services that our readers and
our advertisers have come to expect from Torstar is maintained.
In the Canadian Media division, segment revenues of $984 million were
down 7% in 2013, largely because of print advertising declines at our
newspapers. On a more positive note, distribution revenues were up in
the year and multi-platform subscriber revenues were stable. As well,
while digital profitability was up, digital revenues were down 6% due
primarily to lower revenues at WagJag and Workopolis, offset partially
by growth in local digital revenue at thestar.com and revenues at other
digital properties including eyeReturn Marketing and Olive Media.
Our Canadian Media division is comprised of Metroland Media Group
and Star Media Group.
Metroland Media is one of the country’s premier community publishing
companies, publishing in print and digital in three daily and more than
110 community newspapers across Ontario. Over the years, Metroland
has evolved into a highly diversified division, with an emphasis
on continuous innovation to satisfy its readers and advertisers. In
addition to publishing of newspapers and their associated digital sites,
Metroland also has operations in flyer distribution, magazines, specialty
publications, consumer shows, commercial printing, directories and
numerous digital businesses.
Metroland Media was affected in 2013 like many other newspaper
publishers by continuing declines in print advertising revenues. Overall,
Metroland Media saw its revenues decline 8% to $510 million, including
an $18-million drop in revenue from Metroland Media Group’s TMGTV,
primarily attributable to lower product sales. Metroland Media’s
EBITDA was $71 million, down from $75 million in 2012, a very solid
accomplishment in a tough environment.
During 2013, Metroland focused on building on its longstanding strength
in providing distribution services across its Ontario platform and evolving
their digital offerings, forming the Metroland Digital Commerce group
by bringing together the WagJag business and the digital flyers and
coupons business of Save.ca. Also, Metroland continued to stay strongly
connected to its communities through its unique position in providing
relevant local coverage and information, both in print and digitally.
Star Media Group, which includes the Toronto Star, Metro, Sing Tao, The
Grid, the Kit and many of our digital properties, also was affected by drops
in print advertising revenues. Revenues declined $32 million, or 6%, with
print advertising revenues down 13% at the Toronto Star, partly offset by
growth in local digital advertising. At our Metro newspapers, declines in
Ontario markets were partly offset by growth in certain markets in western
Canada and recent expansion markets. Star Media Group EBITDA was
$60 million in 2013, down $3 million from 2012 as an excellent effort on
cost control was nearly sufficient to offset the revenue decline.
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N OT E S
2013
ANNUAL REPORT
2013
ANNUAL REPORT
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N OT E S
2013
ANNUAL REPORT
F I N A N C I A L TA B L E O F C O N T E N T S
Management’s Discussion & Analysis
Management’s Statement of Responsibility
2013
ANNUAL REPORT
Independent Auditors’ Report to Shareholders
Consolidated Financial Statements
Corporate Information
8
52
53
54
115
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TORSTAR - Management’s Discussion and Analysis
For the year ended December 31, 2013
The following management’s discussion and analysis (“MD&A”) of Torstar Corporation’s (“Torstar” or the “Company")
operations and financial position is supplementary to, and should be read in conjunction with the audited consolidated financial
statements of Torstar Corporation for the year ended December 31, 2013.
Torstar reports its financial results under International Financial Reporting Standards (“IFRS”) as set out in the CPA Canada
Standards and Guidance Collection. All financial information contained in this MD&A and in the consolidated financial
statements has been prepared in accordance with IFRS, except for certain “Non-IFRS Measures” as described in Section 13
of this MD&A. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable
period.
This MD&A is dated March 4, 2014 and all amounts are in Canadian dollars unless otherwise noted.
Additional information relating to Torstar, including its Annual Information Form, is available on the Torstar website at
www.torstar.com and on SEDAR at www.sedar.com.
Effective January 1, 2013, Torstar applied, for the first time, certain IFRS accounting standards and amendments which
required restatement of previously presented financial statements. These include IAS 1 Presentation of Financial Statements,
IAS 19 (Revised 2011) Employee Benefits (“IAS 19R”), IAS 28 Investments in Associates and Joint Ventures, IFRS 10
Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IFRS
13 Fair Value Measurement. Accordingly, the comparative financial information provided in this MD&A has been restated to
reflect the adoption of these accounting standards. The effect of Torstar’s application of these standards is discussed further in
Section 8 of this MD&A.
Forward-looking statements
Certain statements in this MD&A and in the Company’s oral and written public communications may constitute forward-looking
statements that reflect management’s expectations regarding the Company’s future growth, financial performance and
business prospects and opportunities as of the date of this MD&A. Generally, these forward-looking statements can be
identified by the use of forward-looking terminology such as “anticipate”, “believe”, “plan”, “forecast”, “expect”, “intend”,
“would”, “could”, “if”, “may” and similar expressions. This MD&A includes, among others, forward-looking statements
regarding Torstar’s expected net savings from restructuring initiatives and labour savings in Section 2 of this MD&A, Torstar’s
outlook for 2014 in Section 4 of this MD&A, expectations regarding cash flows, long-term bank credit facilities and US dollar
debt in Section 5 of this MD&A, expectations regarding the costs, obligations, contributions, return on plan assets and other
expectations in Section 7 of this MD&A and expectations described in connection with critical accounting policies and
estimates in Section 8 of this MD&A. All such statements are made pursuant to the “safe harbour” provisions of applicable
Canadian securities legislation. These statements reflect current expectations of management regarding future events and
operating performance, and speak only as of the date of this MD&A. In addition, forward-looking statements are provided for
the purpose of providing information about management’s current expectations and plans relating to the future. Readers are
cautioned that reliance on such information may not be appropriate for other purposes.
By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks
and uncertainties. There is a significant risk that predictions, forecasts, conclusions or projections will not prove to be
accurate, that management’s assumptions may not be accurate and that actual results, performance or achievements may
differ significantly from such predictions, forecasts, conclusions or projections expressed or implied by such forward-looking
statements. We caution readers not to place undue reliance on the forward-looking statements in this MD&A as a number of
factors could cause actual future results, conditions, actions or events to differ materially from the targets, outlooks,
expectations, goals, estimates or intentions expressed in the forward-looking statements.
These factors include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
the Company’s ability to operate in highly competitive industries;
the Company’s ability to compete with other newspapers and other forms of media and media platforms;
the Company’s ability to attract and retain advertisers;
the Company’s ability to maintain adequate circulation/subscription levels;
the Company’s ability to attract and retain readers;
the Company’s ability to retain and grow its digital audience and profitably develop its digital businesses;
general economic conditions in the principal markets in which the Company operates;
the Company’s ability to compete with book publishers, self-publishing and other providers of entertainment;
the trend towards digital books and the Company’s ability to distribute its books through the changing distribution
landscape;
the popularity of its authors and its ability to retain popular authors;
TORSTAR CORPORATION 2013 ANNUAL REPORT 8
TORSTAR - Management’s Discussion and Analysis
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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the contraction and concentration of the wholesale and retail print channels;
the Company’s ability to accurately estimate the rate of book returns through the wholesale and retail channels;
the decline of the Company’s direct-to-consumer book publishing operations;
labour disruptions;
the Company’s ability to reduce costs;
loss of reputation;
newsprint costs;
foreign operations and foreign exchange fluctuations;
credit risk;
restrictions imposed by existing credit facilities, debt financing and availability of capital;
changes in pension fund obligations;
reliance on its printing operations;
reliance on technology and information systems;
interest rates;
availability of insurance;
litigation;
privacy, anti-spam, communications, e-commerce and environmental laws and other laws and regulations applicable
generally to the Company’s businesses;
dependence on key personnel;
dependence on third party suppliers and service providers;
intellectual property rights;
results of impairment tests;
risks related to business development and acquisition integration;
product revenue and product liability;
control of the Company by the Voting Trust; and
uncertainties associated with critical accounting estimates.
We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results. In
addition, a number of assumptions, including those assumptions specifically identified throughout this MD&A, were applied in
making the forward-looking statements set forth in this MD&A which the Company believes are reasonable as of the date of
this MD&A. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North
American and global economies; tax laws in the countries in which we operate; continued availability of printing operations;
continued availability of financing on appropriate terms; exchange rates; market competition; rates of return and discount rates
relating to pension expense and pension plan obligations; royalty rates, expected future revenues, expected future cash flows
and discount rates relating to valuation of goodwill and intangible assets; and successful development of new products.
There is a risk that some or all of these assumptions may prove to be incorrect.
When relying on our forward-looking statements to make decisions with respect to the Company and its securities, investors
and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company does
not intend, and disclaims any obligation, to update any forward-looking statements, whether written or oral, or whether as a
result of new information or otherwise, except as may be required by law.
TORSTAR CORPORATION 2013 ANNUAL REPORT 9
TORSTAR - Management’s Discussion and Analysis
Section
Page
Management’s Discussion and Analysis – Contents
1
2
3
4
5
6
7
8
9
Overview
A summary of Torstar’s business
Annual Operating Results
A discussion of Torstar’s operating results for 2013 and 2012
Fourth Quarter Operating Results
A discussion of Torstar’s fourth quarter operating results
Outlook
The outlook for Torstar’s business in 2014
Liquidity and Capital Resources
A discussion of Torstar’s cash flow, liquidity, credit facilities and other disclosures
Financial Instruments
A summary of Torstar’s financial instruments
Employee Future Benefit Obligations
A summary of Torstar’s employee future benefit obligations
Critical Accounting Policies and Estimates
A description of accounting estimates that are critical to determining Torstar’s
financial results, and changes to accounting policies
Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect Torstar
10
Controls and Procedures
A discussion of Torstar’s disclosure controls and internal controls over financial
reporting
11 Selected Annual Information
A summary of selected annual financial information for 2013, 2012 and 2011
12 Summary of Quarterly Results
A summary view of Torstar’s quarterly financial performance
13
Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS and additional IFRS measures
used by management
14 Risks and Uncertainties
Risks and uncertainties facing Torstar
11
12
20
25
26
29
30
32
36
37
38
39
39
41
TORSTAR CORPORATION 2013 ANNUAL REPORT 10
TORSTAR - Management’s Discussion and Analysis
1. Overview
A summary of Torstar’s business
Torstar Corporation is a broadly based media and book publishing company listed on the Toronto Stock
Exchange (Symbol:TS.B). Torstar also has investments in Black Press Limited (“Black Press”), Blue Ant Media
Inc. (“Blue Ant”), Canadian Press Enterprises Inc. (“Canadian Press”), Shop.ca Network Inc. (“Shop.ca”) and
Tuango Inc. (“Tuango”).
Media Segment
The Media Segment includes Metroland Media Group (“MMG”) and Star Media Group (“SMG”).
Star Media Group includes the daily Toronto Star newspaper and thestar.com; a 90% interest in Free Daily News
Group Inc. (“Metro English Canada”) which publishes the Metro free daily newspapers in Toronto, Vancouver,
Ottawa, Calgary, Edmonton, Regina, Saskatoon, London and Winnipeg (pursuant to a franchise agreement with
Metro International) and in Halifax (through a joint venture between Metro English Canada and Transcontinental
Media G.P.); Sing Tao Daily, a Chinese-language daily newspaper published in Toronto, Vancouver and Calgary
(pursuant to a joint venture with Sing Tao Holdings Limited); toronto.com; and several other specialty publications,
magazines and distribution services. Star Media Group also includes eyeReturn Marketing and Torstar’s interests in
Olive Media and Workopolis.
Metroland Media Group publishes in print and online approximately 115 weekly community newspapers, three
daily newspapers (The Hamilton Spectator, the Waterloo Region Record and the Guelph Mercury), numerous other
specialty and monthly publications, magazines, telephone directories, consumer shows and flyer distribution
operations, a number of websites and digital applications and product sales. Its online properties include save.ca,
wagjag.com (“WagJag”, a daily deal website), travelalerts.ca (an online publisher of travel promotional emails),
HomeFinder.ca, gottarent.com, and a 50% interest in LeaseBusters.com. Metroland Media Group also
participates in Wheels.ca (in partnership with Star Media Group). Metroland Media Group also operates Torstar
Media Group Television (“TMGTV”) - a product sourcing and distribution business which until November 2013,
also operated a teleshopping channel. Metroland Media Group has six web press facilities which print the
Metroland newspapers but also engage in commercial printing.
Torstar’s printing plant interests are comprised of: Metroland Media Group’s six printing plants, each of which is
engaged in commercial printing in addition to supporting internal printing needs; Star Media Group operates the
Toronto Star’s Vaughan Press Centre, which primarily supports the Toronto Star’s printing needs but is also
engaged in commercial printing; and Sing Tao’s printing plants in Toronto and Vancouver, which primarily support
Sing Tao’s printing requirements.
Book Publishing Segment
The Book Publishing Segment represents Harlequin, a leading global publisher of books for women. Harlequin
publishes books around the world in a variety of formats, including digital. Harlequin sells books through the retail
channel, in stores and online, and directly to the consumer through its direct mail businesses and from its internet
sites (in North America – Harlequin.com). Harlequin’s publishing operations are comprised of two divisions:
North America and Overseas. In 2013 Harlequin published books in 33 languages in 102 international markets.
Harlequin sells books under several imprints including Harlequin, Harlequin MIRA, Harlequin HQN, Harlequin
Nonfiction, Harlequin TEEN, Harlequin Kimani Press and Carina Press. Different types of stories are published
under the various imprints.
Associated Businesses
At December 31, 2013, Torstar had a 19.4% equity investment in Black Press, a 23.3% equity investment in Blue
Ant, a 33.3% equity investment in Canadian Press, a 19.1% equity investment in Shop.ca and a 38.2% interest in
Tuango.
Black Press is a privately held company that publishes more than 150 titles in print and online in Canada and the
U.S. and has operations in British Columbia, Alberta, Washington State, California, Hawaii and Ohio.
TORSTAR CORPORATION 2013 ANNUAL REPORT 11
TORSTAR - Management’s Discussion and Analysis
Blue Ant is an independent media company which owns and operates specialty channels Travel+Escape, Bite TV,
Cottage Life and AUX TV, and four premium high definition channels Oasis HD, HIFI, Smithsonian, radX and their
companion websites as well as a digital publishing division. Blue Ant also owns the Cottage Life Media group
(publisher of Cottage Life, Cottage, Outdoor Canada, and producer of the Cottage Life consumer shows). In
2013, Torstar invested an additional $2.5 million in Blue Ant.
Canadian Press operates The Canadian Press news agency. During 2013, Torstar invested $0.5 million in
Canadian Press and invested an additional $0.4 million in early 2014.
Shop.ca is an online e-commerce marketplace aimed at Canadian shoppers. On June 15, 2012, Torstar made an
initial investment in Shop.ca consisting of $5.0 million in exchange for a 14.4% equity interest and an additional
$4.8 million of media inventory which was provided through the end of the first quarter of 2013 bringing Torstar’s
interest to 21.6%. As at December 31, 2013, Torstar’s equity interest in Shop.ca was 19.1%.
Tuango is a Quebec-based daily deal business. Prior to February 29, 2012, Torstar held a 50% interest in
Tuango, at which time a portion was sold, reducing Torstar’s remaining interest to 38.2%.
2. Annual Operating Results
A discussion of Torstar’s operating results for 2013 and 2012
Unless otherwise noted, the following is a discussion of Torstar’s 2013 operating results relative to the
comparable periods in 2012.
Overall Performance
Torstar has identified two reportable segments: Media and Book Publishing. Corporate is the provision of
corporate services and administrative support. Management of each segment is accountable for the revenues,
EBITDA (EBITDA is a non-IFRS measure, refer to Section 13 of this MD&A) and operating profit of these
segments which include its proportionately consolidated share of joint venture operations. When reported in the
consolidated statement of income, joint ventures are accounted for using the equity method and accordingly the
net income of joint ventures is included in “Income from joint ventures”. The following tables set out the
segmented results which include Torstar’s proportionate share of joint venture results for the years ended
December 31, 2013 and December 31, 2012 and provide a reconciliation to the consolidated statement of
income.
2013
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA**
Amortization & depreciation
Operating earnings**
Restructuring and other
charges
Impairment of assets
Operating profit (loss)**
Media*
$984,047
(398,298)
(454,972)
130,777
(34,924)
95,853
(33,829)
(86,094)
($24,070)
Book
Publishing*
Corporate
$397,719
(96,570)
(244,834)
56,315
(4,288)
52,027
(4,095)
($10,743)
(2,860)
(13,603)
(40)
(13,643)
$47,932
($13,643)
Total
Segmented*
$1,381,766
(505,611)
(702,666)
173,489
(39,252)
134,237
(37,924)
(86,094)
$10,219
Adjustments
&
Eliminations
for Joint
Ventures
Total Per
Consolidated
Statement of
Income
($72,975)
25,314
36,072
(11,589)
2,986
(8,603)
705
9,000
$1,102
$1,308,791
(480,297)
(666,594)
161,900
(36,266)
125,634
(37,219)
(77,094)
$11,321
TORSTAR CORPORATION 2013 ANNUAL REPORT 12
TORSTAR - Management’s Discussion and Analysis
2012
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA**
Amortization &
depreciation
Operating earnings**
Restructuring and other
charges
Impairment of assets
Operating profit (loss)**
Media*
$1,059,261
(420,441)
(500,417)
138,403
(34,027)
104,376
(16,498)
(13,003)
$74,875
Book
Publishing*
Corporate
$426,483
(95,674)
(253,550)
77,259
(4,107)
73,152
(1,280)
($10,528)
(3,210)
(13,738)
(48)
(13,786)
$71,872
($13,786)
Total
Segmented*
$1,485,744
(526,643)
(757,177)
201,924
(38,182)
163,742
(17,778)
(13,003)
$132,961
* Includes proportionately consolidated share of joint venture operations
**These are Non-IFRS or Additional IFRS measures, refer to Section 13 of this MD&A
Adjustments
&
Eliminations
for Joint
Ventures
Total Per
Consolidated
Statement of
Income
($78,976)
27,158
35,636
(16,182)
2,909
(13,273)
389
11,000
($1,884)
$1,406,768
(499,485)
(721,541)
185,742
(35,273)
150,469
(17,389)
(2,003)
$131,077
Revenue
Segmented revenue was $1,381.8 million down $104.0 million or 7.0% in 2013 inclusive of a $17.6 million
decrease in revenue at Metroland Media Group’s TMGTV primarily resulting from lower product sales. The
decline in product sale revenues in TMGTV operations is consistent with expected product life cycles in this
business.
Media Segment revenues were down $75.2 million or 7.1% in 2013, inclusive of the $17.6 million decrease in
revenue at Metroland Media Group’s TMGTV. This decrease was largely due to print advertising declines at the
newspapers partially offset by growth in distribution revenue. The 2013 Media Segment revenues were
generated as follows: $628.8 million (64.0%) from print and digital advertising, $149.0 million (15.1%) from flyer
distribution, $138.2 million (14.0%) from subscribers and $68.0 million (6.9%) from other activities including
printing.
The 2012 Media Segment revenues were generated as follows: $694.8 million (65.6%) from print and digital
advertising, $143.8 million (13.6%) from flyer distribution, $139.7 million (13.2%) from subscribers and $81.0
million (7.6%) from other activities including printing.
While digital profitability increased during 2013, digital revenues in the Media Segment were down 5.6% in 2013.
This decline was primarily the result of lower revenues at WagJag and Workopolis partially offset by growth in
other digital properties including eyeReturn Marketing, Olive Media and local digital revenue at thestar.com.
Digital revenues were 11.7% of total Media Segment revenues in 2013 up slightly from 11.5% in 2012.
Book Publishing Segment revenues were down $28.8 million in 2013 including a $4.1 million increase from the
impact of foreign exchange. In North America, this decrease was the result of revenue declines in the retail print
and direct-to-consumer channels. Overseas, growth in digital was insufficient to offset print declines and revenues
continued to be affected by challenging economic conditions, particularly in Europe.
Salaries and benefits
Total segmented salaries and benefits expense decreased $21.0 million or 4.0% in 2013 as savings of $27.3
million from restructuring initiatives in the Media Segment and $3.1 million in the Book Publishing Segment,
reduced the impact of regular wage increases and additional pension costs.
Other operating costs
Total segmented other operating costs were down $54.5 million or 7.2% in 2013. Media Segment other operating
costs were down $45.4 million or 9.1% attributable to: (i) variable cost reductions resulting from revenue declines;
(ii) a decrease in costs at TMGTV from lower product sales; and (iii) the impact of cost reduction initiatives. In the
Book Publishing Segment other operating costs were down $8.7 million or 3.4% resulting from variable cost
reductions due to revenue declines and reduced advertising and promotional spending in 2013.
TORSTAR CORPORATION 2013 ANNUAL REPORT 13
TORSTAR - Management’s Discussion and Analysis
EBITDA
Segmented EBITDA was $173.5 million in 2013, down $28.4 million or 14.1% from $201.9 million in 2012. Media
Segment EBITDA was down $7.6 million or 5.5% primarily due to print advertising revenue declines, general
wage increases as well as higher pension costs partially offset by cost reduction initiatives. Book Publishing
Segment EBITDA was down $20.9 million primarily due to lower sales of print books, higher author royalties for
digital sales and lower favourable adjustments to prior year returns provisions. This was partially offset by higher
digital sales, lower advertising and promotional spending and savings from restructuring initiatives.
Amortization and depreciation
Total segmented amortization and depreciation increased $1.1 million or 2.8% in 2013.
Operating earnings
Segmented operating earnings were $134.2 million in 2013, down $29.5 million or 18.0% from $163.7 million in
2012.
Restructuring and other charges
Total segmented restructuring and other charges of $37.9 million were recorded in 2013. This included $33.2
million for restructuring initiatives and $0.6 million for other charges in the Media Segment and $3.1 million for
restructuring initiatives and $1.0 million for other charges in the Book Publishing Segment. The 2013 restructuring
initiatives in the Media Segment are expected to result in annualized net labour savings of approximately $36.6
million and a reduction of approximately 510 positions. The 2013 restructuring initiatives in the Book Publishing
Segment are expected to result in annualized savings of approximately $3.3 million and a reduction of 31
positions. $15.8 million of the savings were realized in 2013.
Total segmented restructuring and other charges of $17.8 million were recorded in 2012. This included $16.5
million for restructuring initiatives in the Media Segment and $0.9 million for restructuring initiatives and $0.4
million for other charges in the Book Publishing Segment.
Torstar has undertaken several restructuring initiatives between 2011 and 2013 in order to reduce ongoing
operating costs. The following chart provides a summary year over year comparable effect of the realized and
expected net savings (including rent savings) by year:
(in $000’s)
Realized net savings in:
2011
2012
2013
Expected net savings in:
2014
2015
Annualized net savings
Year of Initiative
2012
2013
2011
$1,800
7,900
1,100
$6,000
12,400
Total
$1,800
13,900
29,300
22,000
2,100
$69,100
$15,800
22,000
2,100
$39,900
$10,800
$18,400
Impairment of assets
During 2013, Torstar incurred charges related to asset impairment on a segmented basis totaling $86.1 million
related to certain intangible assets and goodwill in the Media Segment. These charges did not impact cash flows.
During the third quarter of 2013, Torstar conducted an impairment test on the carrying value of intangible assets
with a finite useful life, intangible assets with an indefinite useful life and goodwill. In carrying out this testing, it
was determined that the carrying amount of certain intangible assets within the Metroland Media Group of CGUs
and the carrying value of the Star Media Group of CGUs exceeded the value in use. Accordingly, Torstar
recorded impairment of $12.5 million for intangible assets in the Metroland Media Group and $64.0 million for
goodwill in the Star Media Group of CGUs. These impairments were the result of lower forecasted revenues
reflecting shifts in spending by advertisers. Certain of the impairment charges related to intangible assets within
TORSTAR CORPORATION 2013 ANNUAL REPORT 14
TORSTAR - Management’s Discussion and Analysis
the Metroland Media Group of CGUs were also the result of internal reorganization, realignment and integration of
certain digital businesses within the Media Segment which occurred during the third quarter of 2013. As a result of
this and factors noted above, Torstar also recorded a $9.0 million impairment charge in respect of its Sing Tao
Daily joint venture investment.
Other impairment charges totalling $0.6 million were also recorded in 2013 in respect of certain equipment and
intangible assets associated with restructuring activities in the Media Segment.
In 2012, Torstar incurred charges related to asset impairment on a segmented basis totalling $13.0 million related
to certain equipment, intangible assets and joint venture investments in the Media Segment. As a result of
restructuring initiatives, which included the consolidation of some facilities, during the year ended December 31,
2012, Torstar recorded impairment losses of $0.4 million with respect to equipment in the Metroland Media Group
of CGUs and $0.2 million with respect to equipment and $1.4 million of finite-life intangible assets in the Star
Media Group of CGUs. During the fourth quarter of 2012, Torstar performed its annual impairment test on the
value of intangible assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. An
impairment charge of $11.0 million was recorded in the Workopolis joint venture as a result of increased
competition in the online recruitment and job search markets and prevailing economic conditions.
Operating profit
Segmented operating profit was $10.2 million in 2013, down $122.8 million from $133.0 million in 2012 and
reflects a $93.2 million increase in impairment of assets and restructuring and other charges.
Interest and financing costs
Interest and financing costs in 2013 and 2012 were broken down as follows:
(in $000’s)
Interest expense (net)
Interest accretion costs
Net financing costs related to employee benefit plans
Interest and financing costs
2013
$7,778
494
9,188
$17,460
2012
$7,807
1,018
11,081
$19,906
Interest and financing costs were down $2.4 million in 2013. The lower costs primarily reflect lower financing costs
related to employee benefit plans. Net debt1 was $158.5 million at December 31, 2013, down $4.5 million from
$163.0 million at December 31, 2012. Torstar’s effective interest rate on long-term debt was 4.2% in 2013, up
slightly from 4.1% in 2012.
Interest accretion costs are related to contingent consideration estimates, long-term restructuring provisions and
deferred acquisition payments.
Foreign exchange
The non-cash foreign exchange gain or loss reported in the consolidated statement of income primarily relates to
the translation of U.S. dollar denominated assets and liabilities held by Torstar’s Canadian operations into
Canadian dollars. It does not include the translation of foreign currency (including U.S. dollars) denominated
assets and liabilities of Torstar’s foreign operations or the translation of U.S. dollar debt that has been designated
as a hedge against those net U.S. dollar denominated assets. The foreign exchange on the translation of those
foreign currency denominated assets and liabilities and the related hedge-designated debt into Canadian dollars
is reported through other comprehensive income (“OCI”). The amount of the non-cash foreign exchange gain or
loss in any year will vary depending on the movement in the relative value of the Canadian dollar and on whether
Torstar’s Canadian operations have a net asset or net liability position in U.S. dollars.
In 2013, Torstar reported a non-cash foreign exchange loss of $1.5 million as a result of the Canadian dollar
being weaker at the end of the year compared with the beginning and with Torstar’s Canadian operations being in
a net liability position in U.S. dollars for most of the year. In 2012, Torstar reported a non-cash foreign exchange
loss of $0.2 million.
1 Net debt is a non-IFRS measure, refer to Section 13 of this MD&A.
TORSTAR CORPORATION 2013 ANNUAL REPORT 15
TORSTAR - Management’s Discussion and Analysis
Adjustment to contingent consideration
Adjustments to contingent consideration estimates resulted in income of $1.0 million in 2013 and additional costs
of $0.3 million in 2012. Estimates of the fair value of contingent consideration are recorded on the date of the
related acquisition and are revised in future periods as changes in the estimated payments occur.
Income (loss) from joint ventures
Loss from joint ventures was $2.6 million in 2013 compared to income of $2.2 million in 2012. This reflects a
combination of lower revenues included in the discussion of Segmented Revenue as well as impairment charges
of $9.0 million recorded in 2013 related to Torstar’s joint venture investment in Sing Tao Daily and $11.0 million
recorded in 2012 related to Torstar’s joint venture investment in Workopolis, as discussed above.
Income (loss) of associated businesses
Income of associated businesses was $2.3 million in 2013 compared to a loss of $2.8 million in 2012.
2013 included income of $5.5 million from Black Press and income of $0.7 million from Tuango, partially offset by
a loss of $3.1 million from Shop.ca, a loss of $0.4 million related to Canadian Press, a loss of $0.2 million from
Blue Ant and a loss of $0.2 million from other investments.
Torstar’s share of Black Press’s net income was $5.5 million in 2013, representing Black Press’s results through
November 30, 2013. Black Press has a February fiscal year end and therefore does not have coterminous
quarter-ends with Torstar. Torstar did not record its share of Black Press’s results in 2012 as Torstar’s carrying
value in Black Press was previously reduced to nil. Torstar’s share of Black Press’s net income would have been
$3.9 million in 2012. Torstar began to report its share of Black Press’s results in 2013 when the unrecognized
losses ($0.7 million as of December 31, 2012) had been offset by net income or OCI.
Torstar’s share of Tuango’s net income was $0.7 million in 2013 compared to income of $0.9 million for the period
from February 29, 2012 to December 31, 2012.
Torstar’s share of the Shop.ca net loss was $3.1 million in 2013 compared to $0.7 million in 2012. Torstar made
its initial investment in Shop.ca on June 15, 2012 and the Shop.ca website was launched late in the second
quarter of 2012.
Torstar recorded a loss of $0.4 million in 2013 ($0.8 million in 2012) in Canadian Press in respect of its additional
investment commitment as the carrying value had previously been reduced to nil. Torstar will begin to report its
share of Canadian Press’s results once the unrecognized losses (nil as of December 31, 2013 and $6.4 million as
of December 31, 2012) have been offset by net income, OCI or as additional investments are made. In 2013,
Torstar’s share of Canadian Press’s net income would have been $0.5 million ($0.3 million loss in 2012).
During 2013, Torstar made investments in other associated businesses totaling $0.5 million for which a loss of
$0.2 million was recorded in the year.
Gain on sale of assets
During 2013, the Book Publishing Segment sold its 50% joint venture interest in its book publishing business in
Greece for nominal consideration incurring a loss of $0.2 million. This was partially offset by a gain of $0.1 million
from the sale of an available-for-sale equity investment for which Torstar received proceeds of $0.3 million.
During 2012, Torstar recognized a gain on sale of assets of $6.1 million. In the first quarter of 2012, Torstar sold a
portion of its 50% joint venture interest in Tuango for proceeds of $3.9 million and recorded a gain on sale of
assets of $3.4 million. Torstar retained a 38.2% interest in Tuango. In the fourth quarter of 2012, Torstar
recorded a gain of $2.7 million in connection with the sale of the assets of Insurance Hotline. Net proceeds were
$7.0 million comprised of $2.0 million in cash and a 12.6% interest in Kanetix Ltd. (an online Canadian insurance
marketplace) valued at $5.0 million.
TORSTAR CORPORATION 2013 ANNUAL REPORT 16
TORSTAR - Management’s Discussion and Analysis
Investment write-down and loss
Investment write-down and loss was $0.6 million in 2013 and $0.1 million in 2012. During 2013, Torstar
management determined that there had been an other than temporary decline in the value of two portfolio
investments. Accordingly a $0.6 million write-down was recorded during the third quarter reducing the carrying
value to nil.
Income and other taxes
With the exception of impairment charges in respect of certain intangible assets, impairment charges incurred
during 2013 and 2012 were not deductible for tax purposes. Excluding the impact of the impairment charges in
both 2013 and 2012, Torstar’s effective tax rate was 27.8% in 2013 compared to 26.0% in 2012. The effective tax
rate was higher in 2013 as compared to 2012 as there were several items in 2012 income which were capital in
nature and taxed at a lower rate. In addition, Torstar recorded $0.8 million in 2012 as a tax benefit from the
recognition of tax losses that had previously not been recognized.
Torstar’s effective tax rate is higher than the Canadian statutory tax rates due to the large portion of its income
that is taxed in foreign jurisdictions with higher tax rates as well as the impact of expenses that are not deductible
for income tax purposes.
Net income (loss) attributable to equity shareholders
Torstar reported net loss attributable to equity shareholders of $28.0 million or $0.35 per share in 2013 down
$110.3 million or $1.38 per share from net income attributable to equity shareholders of $82.3 million or $1.03 per
share in 2012 and reflects a $94.9 million increase in impairment of assets and restructuring and other charges
over 2012.
The average number of Class A voting shares and Class B non-voting shares outstanding was 79.8 million in
2013, up slightly from 79.7 million in 2012.
The following chart provides a continuity of earnings per share from 2012 to 2013:
Earnings per share attributable to equity shareholders 2012
Changes
• Operations
•
Interest and financing costs
•
Income (loss) of associated businesses
Change in adjusted earnings per share 2013 *
• Restructuring and other charges
•
Impairment of assets
• Non-cash foreign exchange
• Adjustment to contingent consideration
•
Investment write-down and loss
• Gain on sale of assets (2012)
Earnings (loss) per share attributable to equity shareholders 2013
* Adjusted earnings per share is a Non-IFRS measure, refer to Section 13 of this MD&A
(0.28)
0.02
0.07
(0.19)
(0.92)
(0.02)
0.02
(0.01)
(0.07)
$1.03
($0.19)
($0.35)
TORSTAR CORPORATION 2013 ANNUAL REPORT 17
TORSTAR - Management’s Discussion and Analysis
Business Segment Review
Torstar reports its results in two business segments (Media and Book Publishing). Corporate is the provision of
corporate services and administrative support. Torstar’s reporting structure reflects how the business is managed
and how operations are classified for planning and performance measurement. See Section 1 – “Overview” for a
description of Torstar’s business segments.
Segment Operating Results – Media
During 2013, Torstar realigned certain digital businesses within the Media Segment between Metroland Media
Group and Star Media Group. The results for 2013 and 2012 have been restated on a comparative basis to
reflect these changes. The following tables set out operating earnings for the Media Segment for the years ended
December 31, 2013 and December 31, 2012.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
MMG
$509,862
(229,554)
(209,435)
70,873
(15,221)
$55,652
2013
SMG
$474,185
(168,744)
(245,537)
59,904
(19,703)
$40,201
Total
$984,047
MMG
$552,822
(398,298)
(454,972)
130,777
(34,924)
$95,853
(245,726)
(231,683)
75,413
(14,168)
$61,245
2012
SMG
$506,439
(174,715)
(268,734)
62,990
(19,859)
$43,131
Total
$1,059,261
(420,441)
(500,417)
138,403
(34,027)
$104,376
Metroland Media Group
Metroland Media Group revenues were down $43.0 million or 7.8% inclusive of a $17.6 million decrease in
revenue from Metroland Media Group’s TMGTV primarily resulting from lower product sales. Excluding the
decrease in TMGTV revenue, Metroland Media Group revenues were down $25.4 million or 4.7%. This decrease
primarily reflects print advertising revenue declines at the newspapers of 10.4% which were partially offset by a
3.7% increase in distribution revenues.
While digital profitability increased during 2013, digital revenue was down 17.8% relative to 2012 largely reflecting
a decline in WagJag revenues, and to a lesser extent, the loss of revenues resulting from the sale of Insurance
Hotline in the fourth quarter of 2012.
Metroland Media Group expenses decreased by $38.4 million or 8.0% in 2013 resulting from a decrease in
variable expenses tied to revenue declines, including a decrease in costs at TMGTV resulting from lower product
sales, and cost reduction initiatives which included $17.0 million of savings from restructuring initiatives. Savings
from cost reduction initiatives were partially offset by general wage increases and increased pension expenses.
Metroland Media Group EBITDA was $70.9 million in 2013, down $4.5 million from $75.4 million in 2012 as
revenue declines, more than offset cost reductions. Profitability in the Metroland Media Group digital properties
improved in 2013. Operating earnings were $55.7 million in 2013 down $5.6 million or 9.1% from 2012.
Star Media Group
Star Media Group revenues were down $32.3 million or 6.4% with print advertising revenues down 13.4% at the
Toronto Star partially offset by growth in local digital advertising. Subscriber revenues at the Toronto Star
decreased slightly by 0.7% in 2013. At the Metro newspapers, declines in Ontario markets were partially offset by
growth in certain markets in Western Canada and recent expansion markets. Digital revenue from properties in
the Star Media Group increased 2.0% in 2013 reflecting revenue growth in eyeReturn Marketing, Olive Media and
local digital revenue at thestar.com, partially offset by decreased revenue from Workopolis.
Star Media Group expenses decreased by $29.2 million or 6.6% in 2013 as a result of variable cost reductions,
including newsprint consumption and price, as well as cost reduction initiatives, including $10.3 million of savings
from restructuring initiatives. Savings from cost reduction initiatives were partially offset by investment in staff in
the digital operations, investment spending related to Metro including the ongoing support for new markets and
increased pension expenses.
TORSTAR CORPORATION 2013 ANNUAL REPORT 18
TORSTAR - Management’s Discussion and Analysis
Star Media Group EBITDA was $59.9 million in 2013, down $3.1 million from $63.0 million in 2012 as revenue
declines more than offset cost reductions. Star Media Group operating earnings were $40.2 million in 2013, down
$2.9 million or 6.8% from 2012.
Segment Operating Results – Book Publishing
The following tables set out a summary of operating earnings for the Book Publishing Segment and a continuity of
revenue and operating earnings, including the impact of foreign currency movements and foreign exchange
contracts, for the years ended December 31, 2013 and 2012.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
(in $000’s)
Reported revenue, prior year
Impact of currency movements and foreign exchange contracts
Change in underlying revenue
Reported revenue, current year
Reported operating earnings, prior year
Impact of currency movements and foreign exchange contracts
Change in underlying operating earnings
Reported operating earnings, current year
2013
$397,719
(96,570)
(244,834)
56,315
(4,288)
$52,027
2012
$426,483
(95,674)
(253,550)
77,259
(4,107)
$73,152
$426,483
4,053
(32,817)
$397,719
$73,152
(234)
(20,891)
$52,027
Book Publishing Segment revenues were down $32.8 million or 7.6% excluding the impact of foreign exchange
with North American revenues down $21.4 million and Overseas revenues down $11.4 million. The decrease in
North American revenues was the result of declines in the retail print and direct-to-consumer channels. Digital
revenues in North America were relatively flat in the year. Overseas revenues remained below prior year levels
as growth in digital revenue was insufficient to offset print declines and revenues continued to be affected by
challenging economic conditions, particularly in Europe. Global digital revenues were 24.1% of total revenue in
2013, up from 20.7% in 2012.
Book Publishing operating earnings were down $20.9 million in 2013, excluding the impact of foreign exchange.
North American operating earnings were down $18.0 million and Overseas operating earnings decreased $2.9
million as a result of lower revenues, higher author royalties for digital sales and lower favourable adjustments to
prior year returns provisions, partially offset by lower costs including advertising and promotional spending and
$3.1 million of savings from restructuring initiatives.
TORSTAR CORPORATION 2013 ANNUAL REPORT 19
TORSTAR - Management’s Discussion and Analysis
3. Fourth Quarter Operating Results
A discussion of Torstar’s fourth quarter operating results
Unless otherwise noted, the following is a discussion of Torstar’s fourth quarter 2013 operating results relative to
the fourth quarter of 2012.
Overall Performance
The following table sets out the segmented results for the three months ended December 31, 2013 and 2012.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
Restructuring and other
charges
Impairment of assets
Operating profit (loss)
Media*
$271,449
(98,070)
(118,387)
54,992
(8,862)
46,130
(16,512)
(266)
$29,352
Fourth Quarter 2013
Book
Publishing*
Corporate
$95,026
(23,616)
(59,866)
11,544
(1,211)
10,333
(77)
($2,643)
(673)
(3,316)
(10)
(3,326)
$10,256
($3,326)
Fourth Quarter 2012
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
Restructuring and other
charges
Impairment of assets
Operating profit (loss)
Media*
$290,757
(107,816)
(133,376)
49,565
(8,910)
40,655
(5,706)
(11,734)
$23,215
Book
Publishing*
Corporate
$104,989
(23,665)
(64,490)
16,834
(1,080)
15,754
(944)
($2,498)
(786)
(3,284)
(16)
(3,300)
$14,810
($3,300)
* Includes proportionately consolidated share of joint venture operations
Adjustments
&
Eliminations
for Joint
Ventures
Total Per
Consolidated
Statement of
Income
($18,100)
5,851
8,897
(3,352)
767
(2,585)
403
($2,182)
$348,375
(118,478)
(170,029)
59,868
(9,316)
50,552
(16,186)
(266)
$34,100
Adjustments
&
Eliminations
for Joint
Ventures
Total Per
Consolidated
Statement of
Income
($17,854)
6,460
8,839
(2,555)
717
(1,838)
389
11,000
$9,551
$377,892
(127,519)
(189,813)
60,560
(9,289)
51,271
(6,261)
(734)
$44,276
Total
Segmented*
$366,475
(124,329)
(178,926)
63,220
(10,083)
53,137
(16,589)
(266)
$36,282
Total
Segmented*
$395,746
(133,979)
(198,652)
63,115
(10,006)
53,109
(6,650)
(11,734)
$34,725
Revenue
Segmented Revenue was down $29.2 million or 7.4% in the fourth quarter of 2013. Media Segment revenues
were down $19.3 million or 6.6% in the fourth quarter. The fourth quarter Media Segment revenues reflect print
advertising revenue declines but also include the impact of having five fewer publishing days at the Metroland
Media Group daily newspapers and at least one fewer publishing day at the weekly newspapers in the fourth
quarter of 2013 compared to the fourth quarter of 2012. This was the result of variations in the calendar and is the
reversal of additional publishing days included in the first quarter of 2013. Media Segment revenues also reflect a
$2.4 million decrease in revenue at Metroland Media Group’s TMGTV primarily resulting from lower product sales.
While print advertising revenues declined during the fourth quarter of 2013, the rate of decline slowed compared
to the year to date trend experienced to the end of the third quarter, largely the result of improved trends in the
Star Media Group.
Digital revenues in the Media Segment were down slightly by 0.8% in the fourth quarter of 2013 representing an
improvement in the year to date trend experienced to the end of the third quarter. This decline was primarily the
TORSTAR CORPORATION 2013 ANNUAL REPORT 20
TORSTAR - Management’s Discussion and Analysis
result of lower revenues at WagJag and Workopolis largely offset by growth in other digital properties including
eyeReturn Marketing, Olive Media and thestar.com. Digital revenues were 12.2% of total Media Segment
revenues in the fourth quarter of 2013 up from 11.5% in the fourth quarter of 2012.
Book Publishing Segment revenues were down $10.0 million in the fourth quarter including a $3.2 million increase
from the impact of foreign exchange with revenues down in both North America and Overseas. The decrease in
North America was the result of revenue declines in all channels with digital revenues in North America believed
to be negatively affected by increased discounts being offered on digital sales of other publishers’ bestselling
titles. Overseas, growth in digital revenue was insufficient to offset print declines and revenues continued to be
affected by challenging economic conditions, particularly in Europe.
Salaries and benefits
Total segmented salaries and benefits expense was down $9.7 million or 7.2% in the fourth quarter as savings
from restructuring initiatives of $7.9 million in the Media Segment and $0.9 million in the Book Publishing
Segment were offset by the impact of regular wage increases and additional pension costs.
Other operating costs
Total segmented other operating costs were down $19.7 million or 9.9% in the fourth quarter of 2013. Media
Segment other operating costs were down $15.0 million or 11.2% in the fourth quarter resulting from: (i) variable
cost reductions resulting from revenue declines; (ii) the impact of having fewer publishing days at Metroland
Media Group (discussed above); (iii) a decrease in costs at TMGTV resulting from lower product sales; and (iv)
the impact of cost reduction initiatives. In the Book Publishing Segment, other operating costs were down $4.6
million or 7.2% in the fourth quarter resulting from variable cost reductions due to revenue declines and reduced
advertising and promotional spending.
EBITDA
Segmented EBITDA was $63.2 million in the fourth quarter of 2013, up $0.1 million from the fourth quarter of
2012. Media Segment EBITDA was up $5.4 million or 10.9% as cost reductions more than offset revenue
declines. Book Publishing Segment EBITDA was down $5.3 million reflecting declines in revenue partially offset
by lower advertising and promotional spending and $0.9 million of savings from restructuring initiatives.
Amortization and depreciation
Segmented amortization and depreciation expense was $10.1 million in the fourth quarter of 2013, a $0.1 million
increase over the fourth quarter of 2012.
Operating earnings
Segmented operating earnings were $53.1 million in the fourth quarter of 2013, consistent with the fourth quarter
of 2012.
Restructuring and other charges
Total segmented restructuring and other charges of $16.6 million and $6.7 million were recorded in the fourth
quarter of 2013 and 2012 respectively. Fourth quarter 2013 restructuring provisions primarily related to the Media
Segment and are expected to result in annual net savings of $12.6 million and a reduction of approximately 190
positions with $1.2 million of the savings having been realized in the fourth quarter of 2013.
Impairment of assets
On a segmented basis during the fourth quarter of 2013, Torstar incurred charges related to asset impairment
totaling $0.3 million in respect of certain equipment and intangible assets associated with restructuring activities in
the Media Segment.
On a segmented basis during the fourth quarter of 2012, Torstar incurred charges related to asset impairment
totaling $11.7 million related to certain equipment, intangible assets and joint venture investments in the Media
Segment. In connection with restructuring activities, in the fourth quarter of 2012 Torstar incurred charges related
to asset impairment totaling $0.4 million related to certain equipment in the Metroland Media Group of CGUs and
$0.3 million related to certain equipment and finite life intangible assets in the Star Media Group of CGUs.
Additionally, during the fourth quarter of 2012, Torstar performed its annual impairment test on the value of
TORSTAR CORPORATION 2013 ANNUAL REPORT 21
TORSTAR - Management’s Discussion and Analysis
intangible assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. An
impairment charge of $11.0 million was recorded in respect of the Workopolis joint venture as a result of
increased competition in the online recruitment and job search markets and prevailing economic conditions.
Operating profit
Operating profit was $36.3 million in the fourth quarter of 2013, up $1.6 million from $34.7 million in the fourth
quarter of 2012.
Interest and financing costs
Interest and financing costs in the fourth quarter of 2013 and 2012 were broken down as follows:
(in $000’s)
Interest expense (net)
Interest accretion costs
Net financing costs related to employee benefit plans
Interest and financing costs
Fourth Quarter
2013
Fourth Quarter
2012
$1,931
109
2,266
$4,306
$1,850
163
2,769
$4,782
Interest and financing costs decreased $0.5 million in the fourth quarter of 2013 relative to the fourth quarter of
2012 primarily reflecting lower financing costs related to employee benefit plans in the fourth quarter of 2013. Net
debt was $158.5 million at December 31, 2013, down $16.0 million from $174.5 million at September 30, 2013.
Torstar’s effective interest rate on long-term debt was 4.2% in the fourth quarter of 2013, up slightly from 4.0% in
the same period last year.
Foreign exchange
Torstar reported a non-cash foreign exchange loss of $1.0 million in the fourth quarter of 2013 and a loss of $0.1
million in the same period last year. The loss in the fourth quarter of 2013 was the result of the Canadian dollar
being weaker at the end of the quarter relative to the beginning of the quarter and with Torstar’s Canadian
operations being in a net liability position in U.S. dollars for the quarter.
Income (loss) from joint ventures
Income from joint ventures was $1.8 million in the fourth quarter of 2013 compared to a loss of $9.8 million in the
fourth quarter of 2012. This reflects a combination of lower revenues included in the discussion of Segmented
Revenue as well as impairment charges of $11.0 million recorded in the fourth quarter of 2012 related to Torstar’s
joint venture investment in Workopolis, as discussed above.
Income (loss) of associated businesses
Loss from associated businesses was $0.6 million in the fourth quarter of 2013 compared to income of $0.2
million in the fourth quarter of 2012. The fourth quarter of 2013 included income of $1.3 million from Black Press
and income of $0.4 million from Tuango, offset by a loss of $1.5 million from Shop.ca, a loss of $0.4 million from
Canadian Press, a loss of $0.2 million from Blue Ant and a loss of $0.2 million related to other investments.
The income of $0.2 million in the fourth quarter of 2012 included income of $0.6 million from Blue Ant and income
of $0.3 million from Tuango, partially offset by Torstar’s share of losses of $0.2 million from Shop.ca and a loss of
$0.5 million from Canadian Press.
Gain on sale of assets
In the fourth quarter of 2012, Torstar recorded a gain of $2.7 million in connection with the sale of the assets of
Insurance Hotline.
Income and other taxes
Torstar’s effective tax rate was 29.9% in the fourth quarter of 2013 compared to 25.6% in the fourth quarter of
2012, excluding the impact of impairment charges. The effective tax rate was higher in 2013 as compared to
2012 as Torstar recognized a higher proportion of fourth quarter 2013 earnings in foreign jurisdictions which are
subject to higher rates of tax.
TORSTAR CORPORATION 2013 ANNUAL REPORT 22
TORSTAR - Management’s Discussion and Analysis
Net income attributable to equity shareholders
Torstar reported net income attributable to equity shareholders of $20.6 million ($0.26 per share) in the fourth
quarter of 2013, down $0.5 million from $21.1 million ($0.26 per share) in the fourth quarter of 2012.
The average number of Class A voting shares and Class B non-voting shares outstanding was 79.9 million in the
fourth quarter of 2013, up from 79.7 million in the fourth quarter of 2012.
The following chart provides a continuity of earnings per share from the fourth quarter of 2012 to the fourth
quarter of 2013:
Earnings per share attributable to equity shareholders in the fourth quarter of 2012
Changes
• Operations
•
Change in Adjusted earnings per share in the fourth quarter of 2013*
Income (loss) of associated businesses
• Restructuring and other charges
•
Impairment of assets
• Non-cash foreign exchange
• Gain on sale of assets (2012)
Earnings Per share attributable to equity shareholders in the fourth quarter of 2013
* Adjusted earnings per share is a Non-IFRS measure, refer to Section 13 of this MD&A
0.00
(0.01)
(0.09)
0.14
(0.01)
(0.03)
$0.26
($0.01)
$0.26
Segment Results – Media
During 2013, Torstar realigned certain digital businesses within the Media Segment between Metroland Media
Group and Star Media Group. The results for the fourth quarters of 2013 and 2012 have been restated on a
comparative basis to reflect these changes. The following table sets out operating earnings for the Media
Segment for the fourth quarters of 2013 and 2012 respectively.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
MMG
$134,618
(57,873)
(53,250)
23,495
(3,689)
$19,806
Fourth Quarter
2013
SMG
$136,831
Total
$271,449
MMG
$153,537
Fourth Quarter
2012
SMG
$137,220
(40,197)
(65,137)
31,497
(5,173)
$26,324
(98,070)
(118,387)
54,992
(8,862)
$46,130
(64,451)
(62,778)
26,308
(3,733)
$22,575
(43,365)
(70,598)
23,257
(5,177)
$18,080
Total
$290,757
(107,816)
(133,376)
49,565
(8,910)
$40,655
Metroland Media Group
Metroland Media Group revenues were down $18.9 million or 12.3% in the fourth quarter of 2013. Revenues in
the fourth quarter of 2013 were negatively impacted by having five fewer publishing days at the daily newspapers
and at least one fewer publishing day at the weekly newspapers in the fourth quarter of 2013 compared to the
fourth quarter of 2012. The fourth quarter of 2013 was also negatively impacted by a $2.4 million decrease in
Metroland Media Group’s TMGTV primarily resulting from lower product sales. Adjusting for the impact of fewer
publishing days relative to the fourth quarter of 2012, print advertising revenue decreased 10.7% in the fourth
quarter of 2013, partially offset by an increase of 1.9% in distribution revenue. The print advertising revenue
decline experienced in the fourth quarter was similar to the trend experienced for the full year. While profitability in
the Metroland Media Group digital properties continued to improve in the fourth quarter of 2013, digital revenue
was down 24.7% largely driven by a decline at WagJag.
Metroland Media Group expenses were down $16.1 million or 12.7% in the fourth quarter of 2013 resulting from:
(i) fewer publishing days in the fourth quarter (noted above); (ii) a decrease in costs at TMGTV resulting from
TORSTAR CORPORATION 2013 ANNUAL REPORT 23
TORSTAR - Management’s Discussion and Analysis
lower product sales; and (iii) cost reduction initiatives including $3.9 million of savings from restructuring
initiatives. Savings from cost reduction initiatives were partially offset by general wage increases.
Metroland Media Group’s EBITDA was $23.5 million in the fourth quarter of 2013 down $2.8 million and includes
the impact of lower revenues from TMGTV. Profitability in the Metroland Media Group digital properties continued
to improve in the fourth quarter of 2013.
Metroland Media Group’s operating earnings were $19.8 million in the fourth quarter of 2013 down $2.8 million
from the same period last year.
Star Media Group
Star Media Group revenues were $136.8 million in the fourth quarter of 2013, down $0.4 million or 0.3% from
$137.2 million in the fourth quarter of 2012 with print advertising revenues down 8.3% at the Toronto Star, an
improvement over the year to date trend of 15.5% experienced to the end of the third quarter. At the Toronto Star,
subscriber revenue increased by 3.7% in the fourth quarter, reflecting increases in both print and digital
subscription revenue. At the Metro newspapers, revenues increased 1.1% in the fourth quarter, reflecting an
improvement over the previous three quarters of 2013. On a geographic basis, declines in Metro’s Ontario
markets were more than offset by growth in certain markets in Western Canada and recent expansion markets.
Digital revenue from properties in the Star Media Group increased 14.3% in the fourth quarter of 2013 reflecting
revenue growth in eyeReturn Marketing, Olive Media and thestar.com, partially offset by decreased revenue from
Workopolis.
Star Media Group expenses were down $8.6 million or 7.6% in the fourth quarter of 2013 as a result of variable
cost reductions, including newsprint consumption and price, as well as cost reduction initiatives including $4.0
million of savings from restructuring initiatives. Savings from cost reduction initiatives were partially offset by
increased pension expenses.
Star Media Group EBITDA was $31.5 million in the fourth quarter of 2013, up $8.2 million from $23.3 million in the
fourth quarter of 2012 primarily reflecting newspaper related cost reduction initiatives and higher profitability in the
Star Media Group digital properties. Star Media Group operating earnings were $26.3 million in the fourth quarter
of 2013 up $8.2 million from $18.1 million in the fourth quarter of 2012.
Segment Results - Book Publishing
The following tables set out a summary of operating earnings for the Book Publishing Segment and a continuity of
revenue and operating earnings, including the impact of foreign currency movements and foreign exchange
contracts, for the fourth quarters of 2013 and 2012.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
2013
$95,026
(23,616)
(59,866)
11,544
(1,211)
$10,333
2012
$104,989
(23,665)
(64,490)
16,834
(1,080)
$15,754
TORSTAR CORPORATION 2013 ANNUAL REPORT 24
TORSTAR - Management’s Discussion and Analysis
(in $000’s)
Reported revenue, fourth quarter prior year
Impact of currency movements and foreign exchange contracts
Change in underlying revenue
Reported revenue, fourth quarter current year
Reported operating earnings, fourth quarter prior year
Impact of currency movements and foreign exchange contracts
Change in underlying operating earnings
Reported operating earnings, fourth quarter current year
$104,989
3,178
(13,141)
$95,026
$15,754
87
(5,508)
$10,333
Book Publishing revenues were down $13.1 million in the fourth quarter excluding the impact of foreign exchange,
with North American revenues down $10.4 million and Overseas revenues down $2.7 million. The decrease in
North American revenues was the result of declines in all channels. In the fourth quarter of 2013, digital revenues
in North America were believed to be negatively affected by increased discounts being offered on digital sales of
other publishers’ bestselling titles. Overseas revenues were down in the quarter in part due to challenging
economic conditions, particularly in Europe. In addition, Overseas growth in digital revenue was insufficient to
offset print declines.
Global digital revenues were 23.2% of total revenue in the fourth quarter of 2013, up from 21.4% in the same
period last year but down from 25.2% in the third quarter of 2013.
Book Publishing operating earnings were down $5.5 million, excluding the impact of foreign exchange, reflecting
the above noted declines in revenue partially offset by lower advertising and promotional spending and $0.9
million of savings from restructuring initiatives.
4. Outlook
The outlook for Torstar’s business in 2014
In 2013, the Media Segment continued to face challenges as a result of shifts in spending by advertisers
combined with economic uncertainty. The rate of decline of print advertising revenues slowed in the fourth
quarter of 2013, relative to earlier in the year. While indications are that the revenue trends experienced in early
2014 are showing an improvement relative to full year 2013, print advertising revenues are likely to continue to be
under pressure. However, digital revenue and distribution revenue are expected to grow. Across Torstar,
restructuring and operating cost reduction has been and is expected to remain an important area of focus. The
Media Segment is anticipated to realize $21.1 million of savings in 2014 from restructuring initiatives undertaken
through the end of 2013. The Media Segment will also benefit from lower defined benefit pension expense, which
is expected to be approximately $14 million lower in 2014, with $6 million reflected in salaries and benefit
expenses and $8 million in interest and financing costs. In addition, pricing arrangements with the suppliers of a
majority of Torstar’s newsprint requirements are expected to result in lower newsprint costs in 2014. Net
investment spending associated with growth initiatives in 2014 is currently expected to be consistent with 2013
levels.
Harlequin finished 2013 with operating earnings down compared to the prior year reflecting lower revenues,
higher author royalties for digital sales and lower favourable adjustments to prior year returns provisions. With
revenues weaker than anticipated in 2013 and some Overseas markets continuing to face economic challenges,
Harlequin’s 2014 results are expected to be relatively stable compared to 2013, including the benefit of foreign
exchange. However, earnings are expected to be lower in the first quarter as a result of stronger results posted in
the first quarter of 2013 relative to the balance of the year. If the Canadian dollar remains at its current levels
relative to the U.S. dollar and overseas currencies, Harlequin anticipates a year over year positive foreign
currency impact of approximately $5.0 million including the impact of U.S. dollar hedges currently in place.
From a cash flow perspective, in 2014, Torstar anticipates spending approximately $40.0 million for the funding of
registered defined benefit pension plans based on September 1, 2013 actuarial valuations as further discussed in
TORSTAR CORPORATION 2013 ANNUAL REPORT 25
TORSTAR - Management’s Discussion and Analysis
Section 7 of this MD&A. Torstar also anticipates spending approximately $27.0 million for additions to property,
plant, equipment and intangible assets; inclusive of Torstar’s proportionate share of additions to property, plant,
equipment and intangible assets of its joint ventures. The 2014 capital expenditures are anticipated to include
continued investment in technology and software in the Media Segment in addition to general capital maintenance
spending.
5. Liquidity and Capital Resources
A discussion of Torstar’s cash flow, liquidity, credit facilities and other disclosures
Torstar uses the cash generated by its operations to fund capital expenditures, distributions to shareholders,
acquisitions and debt repayment. Long-term debt is used to supplement funds from operations as required,
generally for capital expenditures or acquisitions.
It is expected that future cash flows from operating activities, combined with the long-term bank credit facility will
be adequate to cover forecasted financing requirements in the short and long term.
In 2013, $80.7 million of cash was generated by operations, $28.7 million was used in investing activities and
$50.2 million was used in financing activities. Cash and cash equivalents net of bank overdraft increased by $2.3
million in the year from $15.1 million to $17.4 million.
In the fourth quarter of 2013, $36.0 million of cash was generated by operations, $6.6 million was used in
investing activities and $32.5 million was used in financing activities. Cash and cash equivalents net of bank
overdraft decreased by $2.8 million in the quarter from $20.2 million to $17.4 million.
Operating Activities
Operating activities provided cash of $80.7 million in 2013, down $9.1 million from $89.8 million in 2012. The
lower amount in 2013 reflects lower operating income partially offset by lower funding of employee future benefits,
and a decrease in non-cash working capital.
Non-cash working capital decreased $10.7 million in 2013 resulting from timing of payments for accounts payable
and accrued liability balances, lower tax installments in respect of 2013 and a net increase in current restructuring
provisions. An amount of $26.8 million was paid against restructuring provisions during 2013. Non-cash working
capital increased $9.0 million in 2012 primarily as a result of the final 2011 income tax payment combined with a
net decrease in current restructuring provisions in 2012. Payments of $21.7 million were made in respect of
restructuring provisions during 2012.
Cash provided by operating activities was $36.0 million in the fourth quarter of 2013, including a $5.3 million
decrease in non-cash working capital. In the fourth quarter of 2012, cash provided by operating activities was
$29.0 million including a $7.0 million increase in non-cash working capital. This increase is largely attributable to
the movement in non-cash working capital combined with lower employee benefit funding, partially offset by lower
distributions from joint ventures in the fourth quarter of 2013 relative to the fourth quarter of 2012.
Investing Activities
Cash used in investing activities was $28.7 million in 2013, compared to cash used in investing activities of $47.1
million in 2012.
Additions to property, plant and equipment and intangible assets were $23.1 million in 2013, down $7.1 million
from $30.2 million in 2012. This excludes Torstar’s proportionate share of additions of its joint ventures. The
2013 additions largely included general capital maintenance spending as well as investment in technology,
software, and leasehold improvements across the Media Segment reflecting process improvements, website
development and office space consolidation.
Cash used for investments in associated businesses was $3.5 million in 2013 and $11.3 million in 2012. The 2013
investments included $2.5 million in Blue Ant, $0.5 million in Canadian Press and $0.5 million in other
TORSTAR CORPORATION 2013 ANNUAL REPORT 26
TORSTAR - Management’s Discussion and Analysis
investments. The 2012 investments included $5.8 million in Blue Ant and $5.0 million in Shop.ca and $0.3 million
in Canadian Press.
In 2013, Torstar used cash of $2.5 million for acquisitions and portfolio investments. This included $0.4 million for
portfolio investments and $2.1 million of contingent consideration for prior year acquisitions primarily in the Media
Segment. In 2012, Torstar used cash of $11.9 million for acquisitions and portfolio investments. This included
$1.8 million for new acquisitions, $1.1 million for portfolio investments, $3.1 million of deferred payments from
prior year acquisitions and $5.9 million of contingent consideration for prior year acquisitions primarily in the
Media Segment.
Cash used in investing activities in the fourth quarter of 2013 was $6.6 million, including $6.1 million for additions
to property, plant and equipment and intangible assets and $0.5 million in investments in associated businesses.
In 2012, $7.1 million of cash was used in investing activities, including $7.6 million for additions to property, plant
and equipment and intangible assets and $1.4 million for acquisitions and portfolio investments partially offset by
$2.0 million of cash proceeds received on the sale of Insurance Hotline.
Financing Activities
Cash of $50.2 million was used in financing activities during 2013, including a net $9.0 million repayment of long-
term debt and $41.5 million for cash dividends paid to shareholders. In the fourth quarter of 2013, cash of $32.5
million was used in financing activities including $22.4 million of long-term debt repayments and $10.3 million for
cash dividends paid to shareholders.
Cash of $56.1 million was used in financing activities during 2012, including a net $16.2 million repayment of long-
term debt and $41.1 million for cash dividends paid to shareholders. In the fourth quarter of 2012, cash of $32.4
million was used in financing activities including $22.1 million of long-term debt repayments and $10.4 million for
cash dividends paid to shareholders.
Net Debt
Net debt was $158.5 million at December 31, 2013, down $4.5 million from $163.0 million at December 31, 2012.
The decrease in net debt was net of a $7.2 million increase in net debt resulting from foreign exchange.
Long-term Debt
As at December 31, 2013, Torstar had $175.9 million of debt outstanding under its long-term bank credit facility.
The debt consisted of U.S. dollar bankers’ acceptances of $107.2 million and Canadian dollar bankers’
acceptances of $68.7 million. As at December 31, 2012, Torstar had $178.0 million of debt outstanding under its
long-term bank credit facility. The debt consisted of U.S. dollar bankers’ acceptances of $91.0 million and
Canadian dollar bankers’ acceptances of $87.0 million.
As at December 31, 2013, Torstar’s long-term bank credit facility consists of a $150 million revolving facility
(“Tranche A”) that will mature in January 2017 and a $200 million revolving facility (“Tranche B”) that will mature in
January 2015. Both Tranches provide for annual 364-day extensions upon the mutual agreement of Torstar and
the lenders.
Amounts may be drawn under the credit facility in either Canadian or U.S. dollars. The interest rate spread above
the bankers’ acceptance rate if in Canadian dollars, or the LIBOR rate if in U.S. dollars, varies based on Torstar’s
net debt to operating cash flow ratio for borrowings under either Tranche (range of 1.4% to 2.5%). As at
December 31, 2013, the interest rate spread was 1.5%.
Torstar borrows under the bank credit facility primarily in the form of bankers’ acceptances. The bankers’
acceptances normally mature over periods of 30 to 180 days but as they are issued under the long-term credit
facility, their classification is consistent with the facility. Bankers’ acceptances are generally issued for a term of
less than six months in order to provide for flexibility in borrowing and to benefit from short term interest rates.
The bankers’ acceptances program has been and is intended to continue to be an ongoing source of financing for
Torstar. Recognizing this intent, to the extent that the long-term bank credit facility has sufficient credit available
that it could be used to replace the outstanding bankers’ acceptances, the bankers’ acceptances are classified as
long-term debt in Torstar’s consolidated statement of financial position.
TORSTAR CORPORATION 2013 ANNUAL REPORT 27
TORSTAR - Management’s Discussion and Analysis
Torstar has a policy of maintaining a sufficient level of U.S. dollar denominated debt in order to provide a hedge
against its U.S. dollar assets. It is expected that the level of U.S. dollar debt will remain relatively constant during
2014.
Torstar’s long-term bank credit facility also acts as a standby line in support of letters of credit. At December 31,
2013, a total of $205.0 million (December 31, 2012 - $211.9 million) was drawn under the facility, including a
$26.8 million letter of credit relating to an executive retirement plan (December 31, 2012 - $31.1 million). As of
December 31, 2013, Torstar had approximately $145.0 million of available credit, net of outstanding letters of
credit (December 31, 2012 - $138.1 million).
Contractual Obligations
Torstar has the following significant contractual obligations (in $000’s1):
Nature of the
Obligation2
Office leases
Services
Acquisitions
Equipment leases
Subtotal
Foreign currency forward contracts:
- payments
- receipts
- net
US $ Interest rate swaps
Long-term debt
Total
Total
$103,613
9,693
11,297
1,760
126,363
75,540
(75,164)
376
4,784
176,353
$307,876
Less than 1
Year (2014)
$19,642
5,859
11,190
693
37,384
54,268
(53,712)
556
3,536
$41,476
1 – 3 Years
2015–2016
$36,724
3,230
42
854
40,850
21,272
(21,452)
(180)
1,248
26,353
$68,271
4 – 5 Years
2017–2018
$29,973
604
65
213
30,855
After 5 Years
2019 +
$17,274
17,274
150,0003
$180,855
$17,274
Office leases include the offices at One Yonge Street in Toronto for Torstar and the Toronto Star, Harlequin’s
Toronto head office and the Waterloo Region Record office in Kitchener. The One Yonge Street and Kitchener
leases extend until the year 2020. Harlequin’s lease will expire in 2018. Equipment leases include office
equipment and company vehicles.
The services include distribution contracts for some of the Star Media Group properties and Harlequin’s U.K.
operations and Star Media Group sponsorship commitments. The acquisition obligations relate to the 2011
purchase of The Kit and the call option liability for Metro.
The foreign currency forward contracts are the U.S. dollar and Euro contracts that Torstar uses to manage the
exchange risk in Harlequin’s U.S. operations and Overseas. The interest rate swaps are used to manage the risk
on variable interest rate debt. More details on these are provided in the Financial Instruments section that
follows.
The long-term debt repayment timing reflects Torstar’s credit facility in place as at December 31, 2013.
Torstar has a guarantee outstanding in relation to an operating lease for a warehouse in New Hampshire that was
entered into by one of the businesses in its former Children’s Supplementary Education Publishing Segment.
Lease payments are under U.S. $1.0 million per year and the lease runs through December 2018. The
warehouse has been subleased, on identical terms and conditions, to the purchaser of that business. The
sublease is secured by a U.S. $0.7 million irrevocable letter of credit by the sub-lessee. In the first quarter of
2013, the sub-lessee filed for protection under Chapter 11 of the United States Bankruptcy Code and emerged
2 All foreign denominated obligations were translated at the December 31, 2013 Bank of Canada spot rates.
3 These are commitments under the revolving credit facility noted previously. The credit facilities are subject to customary terms
and conditions and events of default.
TORSTAR CORPORATION 2013 ANNUAL REPORT 28
TORSTAR - Management’s Discussion and Analysis
from its Chapter 11 reorganization in the second quarter of 2013. The sub-lessee assumed the sub-lease as part
of its plan of reorganization and has provided a replacement letter of credit.
Along with the other shareholders of Kanetix Ltd., Torstar has pledged its shares in Kanetix in support of the
Kanetix credit facility.
Outstanding Share and Share Option Information
As at February 28, 2014 Torstar had 9,851,964 Class A voting shares and 70,066,724 Class B non-voting shares
outstanding. More information on Torstar’s share capital is provided in Note 20 of the consolidated financial
statements.
As at February 28, 2014, Torstar had 5,161,290 options to purchase Class B non-voting shares outstanding to
executives and non-executive directors. More information on Torstar’s stock option plan is provided in Note 21 of
the consolidated financial statements.
6. Financial Instruments
A summary of Torstar’s financial instruments
Foreign Exchange
Harlequin’s international operations provide Torstar with approximately 27% of its operating revenues. As a
result, fluctuations in exchange rates can have a significant impact on Torstar’s reported profitability. Torstar’s
most significant exposure is to the movements in the U.S.$/Cdn.$ exchange rate. To manage this exchange risk
in its operating results, Torstar’s practice is to enter into forward foreign exchange contracts to hedge a portion of
its U.S. dollar revenues.
In 2013, Torstar sold U.S. $50.0 million under forward foreign exchange contracts at an average exchange rate of
$1.02. In 2012, Torstar sold U.S. $52.4 million under forward foreign exchange contracts at an average exchange
rate of $1.03. The settlement of these contracts resulted in a foreign exchange loss of $0.4 million in 2013 and a
foreign exchange gain of $1.5 million in 2012. Torstar has entered into forward foreign exchange contracts to sell
$40.0 million U.S. dollars during 2014 at an average rate of $1.05 and $20.0 million U.S. dollars in 2015 at an
average rate of $1.07. These 2014 and 2015 forward foreign exchange contracts had a $0.9 million unfavourable
fair value at December 31, 2013. These U.S. dollar contracts are designated as revenue hedges for accounting
purposes and any resulting gains or losses are recognized in Book Publishing Segment revenues as realized.
In 2013, Torstar also entered into forward foreign exchange contracts to sell €8.0 million at an average rate of
$1.47 during 2014. These Euro forward contracts, which have not been designated as cash flow hedges, have a
negligible net fair value at December 31, 2013.
The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings.
Further details are contained in Note 15 of the consolidated financial statements.
Torstar is also exposed to foreign exchange fluctuations on the translation of foreign currency denominated
assets and liabilities. Foreign exchange gains or losses on the translation of foreign currency (primarily U.S.
dollar) denominated assets and liabilities held by Torstar’s Canadian operations are reported in the consolidated
statement of income. Foreign exchange gains or losses on the translation of foreign currency (including U.S.
dollars) denominated assets and liabilities of Torstar’s foreign operations are reported through OCI.
In order to offset the exchange risk on its statement of financial position from U.S. dollar denominated assets,
Torstar maintains a certain level of U.S. dollar denominated debt. As most of the foreign exchange gains or losses
on those U.S. dollar denominated assets is reported through OCI, Torstar, effective January 1, 2011, has
designated $80.0 million of its U.S. dollar denominated debt as a hedge against its net investment in the Book
Publishing businesses that have the U.S. dollar as their functional currency. The foreign exchange gain or loss
on the translation of U.S. dollar denominated debt in excess of $80.0 million is reported in the consolidated
statement of income.
TORSTAR CORPORATION 2013 ANNUAL REPORT 29
TORSTAR - Management’s Discussion and Analysis
Interest Rates
Torstar has issued bankers’ acceptances at floating rates in both Canadian and U.S. dollars under the long-term
bank credit facility.
Torstar’s general practice has been to have approximately one half of its debt at floating interest rates but the
exact split will vary from time to time. As at December 31, 2013, approximately 48% of Torstar’s long-term debt
was at fixed interest rates as a result of the use of interest rate swap agreements (December 31, 2012 – 44%).
In 2008, Torstar entered into interest rate swap agreements that fix the interest rate on U.S. $80.0 million of
borrowings at approximately 4.2% (plus the applicable interest rate spread based on Torstar’s long-term credit
rating) for seven years ending May 2015. These swap agreements, which have been designated as cash flow
hedges, had an unfavourable fair value of $4.1 million to Torstar at December 31, 2013.
Torstar mitigates its exposure to credit related losses in the event of non-performance by counterparties to the
interest rate swaps by accepting only major financial institutions with high credit ratings as counterparties. Further
details are contained in Note 14 of the consolidated financial statements.
7. Employee Future Benefit Obligations
A summary of Torstar’s employee future benefit obligations
Torstar has several registered defined benefit pension plans which provide pension benefits to its employees
primarily in Canada and the U.S., and an unregistered, unfunded defined benefit pension plan that provides
pension benefits to eligible senior management executives of Torstar. In addition, Torstar has capital
accumulation (defined contribution) plans in Canada, the U.S. and certain of Harlequin’s overseas operations.
Torstar also has a post employment benefits plan that provides health and life insurance benefits to certain
grandfathered employees, primarily in the newspaper operations.
Torstar had the following defined benefit net asset (obligations) as at December 31:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefits plan
2013
$30,965
(26,283)
(42,791)
($38,109)
2012
($181,425)
(26,456)
(47,553)
($255,434)
At December 31, 2013, Torstar’s net asset related to its defined benefit pension plans was $31.0 million, an
increase of $55.7 million from a net obligation of $24.7 million at September 30, 2013 and an increase of $212.4
million from a net obligation of $181.4 million at December 31, 2012, reflecting a combination of asset returns,
increased long-term interest rates and contributions.
Torstar recognized the following expense in net income related to the defined benefit obligations:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefits plan
2013
$29,619
1,965
1,795
$33,379
2012
$28,121
2,154
2,898
$33,173
The cost and obligations of pensions and post employment benefits earned by employees is calculated annually
by independent actuaries using the projected unit credit method prorated on service and management’s best
estimate of assumptions for salary increases, employee turnover, retirement ages of employees, mortality rates
and expected health care costs. On an interim basis, management estimates the changes in the actuarial gains
TORSTAR CORPORATION 2013 ANNUAL REPORT 30
TORSTAR - Management’s Discussion and Analysis
and losses. These estimates are adjusted to actual when the annual calculations are completed by the
independent actuaries.
The significant assumptions made by Torstar’s management in 2013 and 2012 were:
To determine the net benefit obligation at the end of the year:
Discount rate
Rate of future compensation increase
To determine benefit expense:
Discount rate
Rate of future compensation increase
To determine the pension benefit expense for the following year:
Discount rate
Rate of future compensation increase
2013
2012
4.2% - 4.7%
2.5% - 3.0%
3.4% - 3.9%
3.0% - 4.0%
4.3% - 4.4%
3.0% - 4.0%
3.4% - 3.9%
2.5% - 3.0%
2014
4.2% - 4.7%
2.5% - 3.0%
The discount rates 4.2% - 4.7% were the yields at December 31, 2013 on high quality Canadian corporate bonds
with maturities that match the expected maturity of the pension obligations. The selection of a discount rate that
was one percent higher (holding all other assumptions constant) would have resulted in an increase in the value
of the net pension plan asset/(obligation) at December 31, 2013 of $114.8 million. A discount rate that was one
percent lower would have decreased the value of the net pension plan asset/(obligation) at December 31, 2013
by $132.3 million.
Management has estimated the rate of future compensation increases to be between 2.5% and 3.0%. This rate
includes an anticipated level of inflationary increases as well as merit increases. Management has considered
both historical trends and expectations for the future. Recent compensation increases have been lower than this
range given current market conditions but management believes the range reflects an appropriate longer-term
view.
For the post employment benefits plan that provides health and life insurance benefits to certain grandfathered
employees, the key assumptions are the discount rate and health care cost trends. The discount rate used is the
same as the prescribed rate for the defined benefit pension obligation. For health care costs, the estimated trend
was for a 4.2% increase for the 2013 expense. For 2014, health care costs are estimated to increase by 4.4%
with a 0.2% increase each year until 2017. If the estimated increase in health care costs were one percent
higher, the obligation at December 31, 2013 would be approximately $1.2 million higher. If the estimated increase
in health care costs were one percent lower, the obligation at December 31, 2013 would be approximately $1.0
million lower.
Due to the extensive use of estimates in the benefit calculations, actuarial gains and losses arise over time as
discount rates change, when actual return performance differs from the estimated return and as other assumption
estimates change. The most significant actuarial gains and losses arise from changes in the discount rate used
to value the pension plan obligations as well as differences in the actual returns earned on pension plan assets.
Torstar recognizes these actuarial gains and losses as realized, through OCI. Actuarial gains of $184.5 million
were recognized through OCI in 2013 and actuarial losses of $35.0 million in 2012.
Ontario pension plan regulations require that the funded status of registered pension plans be determined no less
frequently than tri-annually through an actuarial solvency report. Any incremental solvency deficits determined by
such reports must be funded over a five-year period. As all of Torstar’s Canadian pension plans are registered in
Ontario, solvency valuations are a key determinant of ongoing defined benefit pension contribution requirements.
Actuarial reports for the most significant group of Torstar’s registered defined benefit pension plans (in terms of
assets and obligations) were completed as of September 1, 2013. Based on these valuations, Torstar had an
estimated solvency deficit of $118 million. Based on the September 1, 2013 solvency report, a 100 basis point
change in the discount rate used to calculate solvency liabilities would result in a change in liabilities of
approximately $133 million. Given the change in the discount rate, combined with asset returns from September
TORSTAR CORPORATION 2013 ANNUAL REPORT 31
TORSTAR - Management’s Discussion and Analysis
1, 2013 through to December 31, 2013, Torstar estimates that the solvency deficit for these plans at December
31, 2013 was approximately $56 million.
Torstar’s funding for its registered defined benefit pension plans in 2013 was $63.4 million. Torstar currently
anticipates that contributions for its registered defined benefit pension plans in 2014 will be approximately $40
million.
In 2014, Torstar currently anticipates funding approximately $39 million for its Canadian registered defined benefit
pension plans. $13.0 million of this amount represents the cost, as determined under the Ontario solvency
regulations, of pension benefits to be earned in 2014, while the balance of $26 million represents contributions to
be made to reduce the solvency deficit.
All of the above solvency and forecasted contribution figures include the benefit of prepaid solvency contributions
which at September 1, 2013 totalled $25 million. The estimated funding for defined benefit pension plans in 2014,
includes the anticipated utilization of approximately $9 million of the September 1, 2013 prepaid amount.
Recently, Torstar has taken steps to reduce its exposure to movements in the net defined pension benefit obligation
by increasing the proportionate share of fixed income assets and also adjusting the maturity profile of a portion of the
fixed income investments as outlined in Note 19 of Torstar’s Consolidated Financial Statements.
8. Critical Accounting Policies and Estimates
A description of accounting estimates that are critical to determining Torstar’s financial results, and changes to
accounting policies
Accounting Policies
The accounting policies used in the preparation of the consolidated financial statements are outlined in Note 2 of
the annual consolidated financial statements for the year ended December 31, 2013. Effective January 1, 2013,
Torstar applied, for the first time, certain standards and amendments that require restatement of previous financial
statements. These include IAS 1 Presentation of Financial Statements, IAS 19 (Revised 2011) Employee Benefits
(“IAS 19R”), IAS 28 Investments in Associates and Joint Ventures, IFRS 10 Consolidated Financial Statements,
IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities. The nature and the effect of these
changes are disclosed below.
In addition, the application of IFRS 13 Fair Value Measurement resulted in additional disclosures in the annual
consolidated financial statements.
Most of the new standards have had a relatively minor impact on Torstar’s financial reporting but there are several
that have had a more significant impact, the nature and the impact of which are described below:
IAS 19R Employee Benefits
The amendments to IAS 19 introduced a net interest approach for defined benefit obligations by replacing the
expected return on plan assets and interest costs on the defined benefit obligation with a single net interest
component determined by multiplying the net defined benefit liability or asset by the discount rate used to
determine the defined benefit obligation. The amended standard was effective for Torstar’s 2013 fiscal year with
retroactive restatement to January 1, 2012. The adoption of the standard did not impact future cash funding
requirements. Upon the adoption of this standard, Torstar began classifying the interest component of employee
future benefit expenses, previously included in salaries and benefits expense, in interest and financing costs.
Also, unvested past service costs are no longer deferred and recognized over future vesting periods. Instead, all
past service costs are recognized at the earlier of when the amendment occurs and when the Torstar recognizes
related restructuring or termination costs. Prior to the adoption of this standard, Torstar’s unvested past service
costs were recognized as an expense on a straight-line basis over the average period until the benefits become
vested. Upon transition to IAS 19R, past service costs are recognized immediately if the benefits have vested
following the introduction of, or changes to, a pension plan. The effect of Torstar’s application of this standard on
the restated annual 2012 operating results is summarized as follows:
TORSTAR CORPORATION 2013 ANNUAL REPORT 32
TORSTAR - Management’s Discussion and Analysis
(in ‘000’s)
Increase in salaries and benefits
Decrease in EBITDA/operating earnings profit
Increase in interest and financing costs
Decrease in income before taxes
Decrease in income and other taxes
Decrease in net income
Total
($5,808)
(5,808)
(11,081)
(16,889)
4,200
($12,689)
The increase in salaries and benefits expense on a restated basis substantially impacted the Media Segment with
a negligible impact in the Book Publishing Segment and Corporate. Further details on the impact of the adoption
of these standards are disclosed in Note 29 to the consolidated financial statements.
IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in Other Entities, IAS 28 Investments in Associates
and Joint Ventures
These standards provide the accounting for joint ventures and joint operations which has eliminated the use of the
proportionate consolidation method to account for joint ventures. These standards require that joint ventures be
accounted for using the equity method of accounting. As a consequence of the new IFRS 11 and IFRS 12, IAS 28
has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the
equity method to investments in joint ventures in addition to associates. The new standards were effective for
Torstar for its 2013 fiscal year with retroactive restatement to January 1, 2012. Torstar historically proportionately
consolidated its joint ventures including its interest in Sing Tao Daily, Workopolis and Harlequin’s operations in
France and Italy. With the new standards, the revenues, expenses, assets and liabilities from these operations in
Torstar’s consolidated financial statements have been replaced by a single investment amount in the consolidated
statement of financial position and a single income amount in the consolidated statement of income.
Upon adoption of IFRS 11, IFRS 12 and IAS 28 Torstar’s joint ventures were required to be accounted for using
the equity method. The effect of applying IFRS 11, IFRS 12 and IAS 28 in the annual 2012 Consolidated
Statement of Income is as follows:
(in ‘000’s)
Decrease in operating revenue
Decrease in salaries and benefits
Decrease in other operating costs
Decrease in EBITDA
Decrease in amortization and depreciation
Decrease in operating earnings
Decrease in restructuring and other charges
Decrease in impairment of assets
Decrease in operating profit
Increase in interest and financing costs
Increase in foreign exchange loss
Decrease in loss from associated businesses
Increase in income from joint ventures
Decrease in gain on sale of assets
Decrease in other income
Decrease in income before taxes
Decrease in income and other taxes
Impact on net income
Total
($78,976)
27,158
35,636
(16,182)
2,909
(13,273)
389
11,000
(1,884)
(66)
(2)
493
2,183
(3,731)
(10,407)
(13,414)
5,200
($8,214)
Further details on the impact of the adoption of these standards are disclosed in Note 29 to the consolidated
financial statements.
The decrease in other income in the above noted table is the result of the remeasurement gain recognized on the
sale of a portion of Tuango in 2012. Had IFRS 11, IFRS 12 and IAS 28 been effective prior to January 1, 2013,
this gain would not have been recorded in Torstar’s 2012 consolidated financial statements.
TORSTAR CORPORATION 2013 ANNUAL REPORT 33
TORSTAR - Management’s Discussion and Analysis
Accounting Estimates
The preparation of Torstar’s consolidated financial statements in conformity with IFRS requires management to
make judgements, estimates and assumptions that affect the application of accounting policies and the reported
amounts of revenues, expenses, assets, and liabilities and the disclosure of contingent liabilities, at the end of the
reporting period.
Management uses estimates when accounting for certain items such as revenues, allowance for doubtful
accounts, useful lives of capital assets, asset impairments, provisions, share-based compensation plans,
employee benefit plans, deferred income taxes and goodwill impairment. Estimates are also made by
management when recording the fair value of assets acquired and liabilities assumed in a business combination.
Estimates are based on a number of factors, including historical experience, current events and other
assumptions that management believes are reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and actual results could differ. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected.
The more significant estimates and assumptions made by management are described below:
Book revenue provisions
In the Book Publishing Segment, revenue from the sale of books is recorded net of provisions for estimated
returns and direct-to-consumer bad debts (book revenue provisions). Retail print books are sold with a right of
return. The retail returns provision is estimated based primarily on point-of-sale information, returns patterns and
historical sales performance for the type of book and the author. Direct-to-consumer books are shipped with no
obligation to the customer who may return the books or cancel their subscription at any time. The direct-to-
consumer book revenue provision recognizes that not all books shipped will be purchased by the customer.
Direct-to-consumer book revenue provisions are made at the time of shipment for the anticipated physical return
of the books or a non-payment for the shipment. The direct-to-consumer book revenue provisions are estimated
based on historical payment rates for the type of book as well as how long the customer has been a subscriber.
The impact of the variance between the original estimate for returns and direct-to-consumer bad debts and the
actual experience is reported in a period subsequent to the original sale. This can have either a positive (if the
actual experience is better than estimated) or negative (if the actual experience is worse) impact on reported
results. This subsequent impact has historically been more significant for the retail returns provisions than the
direct-to-consumer book revenue provisions.
As at December 31, 2013, the book revenue provisions, deducted from accounts receivable on the consolidated
statement of financial position was $69.2 million ($67.3 million in 2012). A one percent change in the average net
sale rate used in calculating the global retail returns provision on sales from July to December 2013 would have
resulted in a $2.5 million change in reported 2013 revenue.
Employee Future Benefits
The accrued net benefit asset or liability and the related cost of defined benefit pension plans and other post
employment benefits earned by employees is determined each year by independent actuaries based on several
assumptions.
The actuarial valuation uses management’s assumptions for rate of compensation increase, trends in healthcare
costs and expected average remaining years of service of employees. Management applies judgement in the
selection of these estimates, based on regular reviews of salary increases, health care costs and demographic
employee data. The most significant assumption is the discount rate.
The discount rate used to determine the present value of the net defined benefit obligation is based on the yield
on long-term, high-quality corporate bonds, with maturities matching the estimated cash flows from the benefit
plan. A lower discount rate would result in a higher employee benefit obligation.
TORSTAR CORPORATION 2013 ANNUAL REPORT 34
TORSTAR - Management’s Discussion and Analysis
Management’s current estimates, along with a sensitivity analysis are further discussed under “Employee Future
Benefit Obligations” in this MD&A and are disclosed in Note 19 of the consolidated financial statements.
Impairment of non-financial assets
At each reporting date, Torstar is required to assess its intangible assets and goodwill for potential indicators of
impairment such as an adverse change in business climate that may indicate that these assets may be impaired.
If any such indication exists, Torstar estimates the recoverable amount of the asset, CGU or group of CGUs and
compares it to the carrying value. In addition, irrespective of whether there is any indication of impairment,
Torstar is required to test intangible assets with an indefinite useful life and goodwill for impairment at least
annually.
For intangible assets other than goodwill, Torstar is also required to assess at each reporting date whether there
is any indication that previously recognized impairment losses may no longer exist or may have decreased.
Torstar completes its annual testing during the fourth quarter each year.
The test for impairment for either an intangible asset or goodwill is to compare the recoverable amount of the
asset or CGU to the carrying value. The recoverable amount is the greater of fair value less costs to sell and
value in use. The recoverable amount is determined for an individual asset unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups of assets (such as goodwill). If this
is the case, the recoverable amount is determined for the CGU to which the asset belongs.
In calculating the recoverable amount, management is required to make several assumptions, including, but not
limited to, royalty rates, expected future revenues, expected future cash flows and discount rates. Torstar’s
assumptions are influenced by current market conditions and levels of competition, both of which may affect
expected revenues. Expected cash flows, may be further affected by changes in operating costs beyond what
Torstar is currently anticipating. Torstar has made certain assumptions for the discount and terminal growth rates
to reflect possible variations in the cash flows; however, the risk premiums expected by market participants
related to uncertainties about the industry, specific reporting units or specific intangible assets may differ or
change quickly depending on economic conditions and other events. Changes in any of these assumptions could
have a significant impact on the fair value of the reporting unit or the intangible asset and the results of the related
impairment testing.
Taxes
Torstar is subject to income taxes in Canada and foreign jurisdictions. Significant judgement is required in
determining the world-wide provision for income taxes. During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax determination is uncertain. Management uses judgement
in interpreting tax laws and determining the appropriate rates and amounts in recording current and deferred
taxes, giving consideration to timing and probability. Actual income taxes could significantly vary from these
estimates as a result of future events, including changes in income tax law or the outcome of reviews by tax
authorities and related appeals. To the extent that the final tax outcome is different from the amounts that were
initially recorded, such differences will impact the income tax provision in the period in which such determination
is made.
Deferred tax is provided using the liability method for temporary differences between the tax bases of assets and
liabilities and their carrying amount for financial reporting purposes. Deferred tax assets and liabilities are
measured using substantively enacted tax rates and laws at the reporting date that are expected to be in effect
when the temporary differences are expected to reverse.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits
and unused tax losses to the extent that it is probable that sufficient taxable profit will be available against which
they can be utilized. When assessing the probability of taxable profit being available, management primarily
considers prior years’ results, forecasted future results and non-recurring items. As such, the assessment of
Torstar’s ability to utilize tax losses carried forward is to a large extent judgement-based. If the future taxable
results of Torstar differ significantly from those expected, Torstar would be required to increase or decrease the
TORSTAR CORPORATION 2013 ANNUAL REPORT 35
TORSTAR - Management’s Discussion and Analysis
carrying value of the deferred tax assets with a potentially material impact in the Torstar’s consolidated statement
of financial position and consolidated statement of comprehensive income. The carrying amount of deferred tax
assets is reassessed at each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to utilize all or part of the deferred tax assets. Unrecognized deferred tax assets
are reassessed at each reporting period and are recognized to the extent that it is probable that there will be
sufficient taxable profits to allow all or part of the asset to be recovered.
More information on Torstar’s income taxes is provided in Note 13 of the consolidated financial statements.
Significant judgements made by management are described below.
Classification of investments as portfolio investments, associated businesses, joint ventures and subsidiaries
Classification of investments requires judgement on whether Torstar controls, has joint control or significant
influence over the strategic financial and operating decisions relating to the activity of the investee. Joint control
is the contractually agreed sharing of control over the financial and operating policy decisions of the investee. It
exists only when the decisions require the unanimous consent of the parties sharing control. Significant influence
is the power to participate in the financial and operating policy decisions of the investee but does not represent
control or joint control over those decisions. If an investor holds 20% or more of the voting power of the investee,
it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the
case. Conversely, if the investor holds less than 20% of the voting power of the investee, it is presumed that the
investor does not have significant influence, unless such influence can be clearly demonstrated.
In assessing the level of control or influence that Torstar has over an investment, management considers
ownership percentages, board representation as well as other relevant provisions in shareholder agreements.
Black Press and Shop.ca have been classified as associated businesses based on management’s judgement that
Torstar has, based on rights to board representation and other provisions in the respective shareholder
agreements, significant influence despite owning less than 20% of the voting rights throughout 2013 and 2012.
Determination of operating segments, reportable segments and CGUs
Torstar has two reportable segments: Media and Book Publishing. “Corporate” is the provision of corporate
services and administrative support. Based on the information provided to Torstar’s chief operating decision-
maker, the Media Segment includes the Star Media Group and Metroland Media Group operating segments
which have been aggregated to form the Media reportable segment. Each of the Star Media Group and
Metroland Media Group include CGUs which have been grouped together for purposes of reviewing performance
and impairment testing. These operating segments have been aggregated as they exhibit similar long-term
financial performance, have similar economic characteristics and they are similar in each of the following aspects;
the nature of their products and services; the nature of their production processes; the type of customer for their
products and services; and the methods used to distribute their products and provide their services. Torstar’s
chief operating decision-maker monitors the operating results of the operating units separately for the purpose of
assessing performance. Segment performance is evaluated based on operating profit which corresponds to
operating profit as measured in the consolidated financial statements except that it includes the proportionately
consolidated share of joint venture operations. Decisions regarding resource allocation are made at the reportable
segment level.
9. Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect Torstar
The International Accounting Standards Board (“IASB”) continues to issue new and revised IFRS. A listing of the
changes in IFRS is included in Note 2(t) in Torstar’s December 31, 2013 consolidated financial statements. Most
of the new standards are currently not expected to have a material impact on Torstar’s financial reporting.
TORSTAR CORPORATION 2013 ANNUAL REPORT 36
TORSTAR - Management’s Discussion and Analysis
10. Controls and Procedures
A discussion of Torstar’s disclosure controls and internal controls over financial reporting
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by Torstar in
reports filed with securities regulatory authorities is recorded, processed, summarized and reported on a timely
basis, and is accumulated and communicated to Torstar’s management, including the CEO and CFO as
appropriate, to allow timely decisions regarding required disclosure.
As at December 31, 2013, under the supervision of, and with the participation of the CEO and CFO, Torstar’s
management evaluated the effectiveness of the design and operation of its disclosure controls and procedures.
Based on this evaluation, Torstar’s CEO and CFO have concluded that, as at December 31, 2013, Torstar’s
disclosure controls and procedures were effective.
Internal Controls over Financial Reporting
Torstar’s management is responsible for establishing and maintaining adequate internal controls over financial
reporting. These controls include policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Torstar; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with IFRS, and that receipts and expenditures are being made only in accordance with
authorizations of management and directors of Torstar; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of Torstar’s assets that could have a
material effect on the financial statements.
All control systems contain inherent limitations, no matter how well designed. As a result, Torstar’s management
acknowledges that its internal controls over financial reporting will not prevent or detect all misstatements due to
error or fraud. In addition, management’s evaluation of controls can provide only reasonable, not absolute,
assurance that all control issues that may result in material misstatements, if any, have been detected.
Management, under the supervision of, and with the participation of the CEO and CFO, assessed the
effectiveness of internal controls over financial reporting, using the Original Committee of Sponsoring
Organizations of the Treadway Commission (COSO) framework, and based on that assessment concluded that
internal controls over financial reporting were effective as at December 31, 2013.
Changes in Internal Control over Financial Reporting
There have been no changes in Torstar’s internal controls over financial reporting that occurred during the year
ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, Torstar’s
internal controls over financial reporting.
TORSTAR CORPORATION 2013 ANNUAL REPORT 37
TORSTAR - Management’s Discussion and Analysis
11. Selected Annual Information
A summary of selected annual financial information for 2013, 2012 and 2011
(in $000’s – except per share amounts)
2013
2012
Segmented Revenue
Revenue
Net income (loss)
Net income (loss) attributable to equity shareholders
$1,381,766
$1,308,791
($27,413)
($27,984)
Net income (loss) attributable to equity shareholders per Class A voting and
Class B non-voting share
Basic
Diluted
($0.35)
($0.35)
Average number of shares outstanding during the year (in 000’s)
Basic
Diluted
79,840
79,840
$1,485,744
$1,406,768
$82,933
$82,344
$1.03
$1.03
79,671
79,946
20114
$1,548,757
$1,548,757
$218,141
$217,721
$2.74
$2.72
79,400
79,949
Cash dividends per Class A voting and Class B non-
voting share
$0.525
$0.5188
$0.4675
Total assets
Total long-term debt
$1,348,712
$175,898
Revenue has declined in 2013 and 2012 in both the Media and Book Publishing Segments. 2011 Media Segment
Revenue included higher product sales in Metroland Media Group’s TMGTV. Digital revenues grew in 2011 and
2012 in both the Media and Book Publishing Segments. While this trend continued in the Book Publishing
Segment, digital revenues in the Media Segment decreased slightly in 2013.
$1,443,888
$178,027
$1,484,767
$196,191
Over the three year period, significant labour cost savings have been realized in the Media Segment from
restructuring initiatives. The provisions for the costs of these restructuring initiatives have had a negative impact
on net income, generally in a period in advance of the cost savings being realized.
Net income in 2011 was positively impacted by a $74.6 million gain on the sale of Torstar’s interest in CTV and a
$19.0 million remeasurement gain related to Torstar’s previously-held interest in Metro.
Total assets have declined slightly over the three year period while long-term debt has been reduced by $20.3
million.
4 These figures have not been restated to reflect the adoption of IAS 19R, IFRS 11, IFRS 12 and IAS 28. Refer to Section 8 of this MD&A for
further information.
TORSTAR CORPORATION 2013 ANNUAL REPORT 38
TORSTAR - Management’s Discussion and Analysis
12. Summary of Quarterly Results
A summary view of Torstar’s quarterly financial performance
The following table presents selected financial information for each of the eight most recently completed quarters:
2013 Quarter Ended
2012 Quarter Ended
(in $000’s - except
per share amounts)
Revenue
Net Income
Net Income
attributable to equity
shareholders
Per Class A voting
and Class B non-
voting share
Dec 31
$348,375
$21,126
Sept 30
$310,413
($70,861)
June 30
$336,585
$18,140
March 31
$313,418
$4,182
Dec 31
$377,892
$21,324
Sept 30
$335,822
$11,289
June 30
$363,725
$32,823
March 31
$329,329
$17,497
$20,637
($70,800)
$18,006
$4,173
$21,079
$11,142
$32,585
$17,538
Basic
Diluted
$0.26
$0.26
($0.89)
($0.89)
$0.23
$0.23
$0.05
$0.05
$0.26
$0.26
$0.14
$0.14
$0.41
$0.41
$0.22
$0.22
The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in the Media
Segment. The second and fourth quarters are generally the strongest for the media businesses with the first and
third quarters being the softest. Book Publishing Segment revenues will vary each quarter depending on the
publishing schedule and the impact of foreign exchange rates.
Restructuring and other charges have also impacted the level of net income in several quarters. Restructuring
and other charges (reported on a segmented basis) were $8.0 million, $7.1 million, $6.3 million and $16.6 million
in the first, second, third and fourth quarters of 2013, respectively. In 2012, the first, second, third and fourth
quarters had restructuring and other charges (reported on a segmented basis) of $2.6 million, $1.7 million, $6.9
million and $6.7 million respectively. Additionally, losses on impairment of assets (reported on a segmented
basis) of $0.4 million, $85.5 million and $0.3 million were recorded in the second, third and fourth quarters of 2013
respectively. Losses on impairment of assets (reported on a segmented basis) of $0.3 million, $1.0 million and
$11.7 million were also recorded in the second, third and fourth quarters of 2012 respectively.
13. Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS and additional IFRS measures used by management
In addition to operating profit, an additional IFRS measure, as presented in the consolidated statement of income,
management uses
(and where applicable Segmented
EBITDA),operating earnings (and where applicable Segmented operating earnings) and Adjusted Earnings Per
Share; as measures to assess the consolidated performance and the performance of the reporting units and
business segments. Torstar also reports net debt, which is a non-IFRS measure.
following non-IFRS measures; EBITDA
the
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)
EBITDA (earnings before interest, taxes, depreciation and amortization) is a measure that is also used by many of
Torstar’s shareholders, creditors, other stakeholders and analysts as a proxy for the amount of cash generated by
Torstar’s operations or by a reporting unit or business segment. EBITDA is not the actual cash provided by
operating activities and is not a recognized measure of financial performance under IFRS. Torstar calculates
EBITDA as operating revenue less salaries and benefits and other operating costs as presented on the
consolidated statement of income. EBITDA excludes restructuring and other charges and impairment of assets.
Torstar’s method of calculating EBITDA may differ from other companies and accordingly may not be comparable
to measures used by other companies. Segmented EBITDA is calculated in the same manner described above,
except that it is calculated using total segment results prior to the elimination of proportionately consolidated
results for joint ventures.
TORSTAR CORPORATION 2013 ANNUAL REPORT 39
TORSTAR - Management’s Discussion and Analysis
Operating earnings/Segmented operating earnings
Operating earnings is used by management to represent the results of ongoing operations and is not a
recognized measure of financial performance under IFRS. Torstar calculates operating earnings as operating
revenue less salaries and benefits and other operating costs and amortization and depreciation. Operating
earnings excludes restructuring and other charges and impairment of assets. Torstar’s method of calculating
operating earnings may differ from other companies and accordingly may not be comparable to measures used
by other companies. Segmented operating earnings is calculated in the same manner described above, except
that it is calculated using total segment results prior to the elimination of proportionately consolidated results for
joint ventures.
The following is a reconciliation of EBITDA and Operating earnings (and Segmented EBITDA/Segmented
Operating earnings – as applicable) with Operating profit (Segmented Operating profit – as applicable). EBITDA,
Segmented EBITDA, Operating earnings and Segmented Operating earnings are regularly reported to the chief
operating decision maker and corresponds to the definition used in our historical discussions.
Segmented
Fourth
Quarter
2013
$36,282
Fourth
Quarter
2012
$34,725
2013
$10,219
2012
$132,961
Fourth
Quarter
2013
$34,100
Total
Fourth
Quarter
2012
$44,276
2013
$11,321
2012
$131,077
16,589
6,650
37,924
17,778
16,186
6,261
37,219
17,389
266
$53,137
10,083
$63,220
11,734
$53,109
86,094
$134,237
10,006
$63,115
39,252
$173,489
13,003
$163,742
38,182
$201,924
266
$50,552
9,316
$59,868
734
$51,271
77,094
$125,634
2,003
$150,469
9,289
$60,560
36,266
$161,900
35,273
$185,742
Operating profit
Add: Restructuring
and other charges
Add: Impairment of
assets
Operating earnings
Add: Amortization and
depreciation
EBITDA
Net debt
Net debt is used by management to represent the amount of borrowings outstanding and is calculated as the sum
of Long-term debt, Current portion of long-term debt and Bank overdraft less Cash and cash equivalents. The
following is a reconciliation of Net debt to Long-term debt.
Net debt
Add: Cash and cash equivalents
Less: Bank overdraft
Less: Current portion long-term debt
Long-term debt
2013
$158,488
19,151
(1,741)
-
$175,898
2012
$162,967
24,827
(9,767)
-
$178,027
Adjusted earnings per share
Adjusted earnings per share is used by management to represent the per share earnings of results of ongoing
operations on a per share basis and is not a recognized measure of financial performance under IFRS. Torstar
calculates adjusted earnings per share as earnings per share less the per share effect of impairment of assets,
restructuring and other charges, non-cash foreign exchange, adjustments to contingent consideration, gain (loss)
on sale of assets and investment write-down and loss. Torstar’s method of calculating adjusted earnings per
share may differ from other companies and accordingly may not be comparable to measures used by other
companies. The following is a reconciliation of Adjusted earnings per share to Earnings per share.
TORSTAR CORPORATION 2013 ANNUAL REPORT 40
TORSTAR - Management’s Discussion and Analysis
Adjusted earnings per share
• Restructuring and other charges
•
Impairment of assets
• Non-cash foreign exchange
• Adjustment to contingent consideration
•
Investment write-down and loss
Earnings (loss) per share
2013
$1.01
Fourth Quarter
$0.48
(0.21)
0.00
(0.01)
0.00
0.00
(0.35)
(0.99)
(0.02)
0.01
(0.01)
$0.26
($0.35)
Operating profit
Operating profit is an additional IFRS measure used by management to represent the results of operations
inclusive of impairments and restructuring and other charges and appears in Torstar’s consolidated statement of
income.
14. Risks and Uncertainties
Risks and uncertainties facing Torstar
Torstar is subject to a number of risks and uncertainties, including those set forth below. A risk is the possibility that
an event might happen in the future that could have a negative effect on the financial condition, financial
performance or business of Torstar. The actual effect of any event on Torstar’s business could be materially
different from what is anticipated. This description of risks does not include all possible risks.
Media Segment – Revenue Risks
Revenue from Torstar’s Media Segment accounted for approximately 71% of Torstar’s total segmented revenue in
the year ended December 31, 2013. Revenue in the Media Segment is primarily dependent upon the sale of
advertising and to a lesser extent, the generation of circulation/subscription revenue and the distribution of inserts
and flyers. Advertising revenue includes in-paper advertising, digital advertising and specialty publications.
Competition
Competition for advertising and circulation/subscription revenue comes from a variety of sources such as free and
paid local, regional and national newspapers, radio, broadcast and cable television, outdoor, direct marketing,
directories, and increasingly advertising-supported digital products that provide news and information, including
websites, news aggregators, social media, applications for mobile devices, and other communications and
advertising media. There has been consolidation in Canadian media, and competitors increasingly have interests in
multiple forms of media and may be more successful in attracting advertising revenue. In addition, online
advertising networks, exchanges, real-time bidding and programmatic buying channels that allow advertisers to
target audiences are also playing a more significant role in the advertising industry.
There has been a structural shift within the advertising industry from print to digital advertising, which can be less
expensive and more easily measured than traditional print media. This shift has and will continue to negatively
impact print advertising revenue and may be permanent. The extent and nature of competition has intensified over
the past few years as a result of the continued development of digital media alternatives and the fragmentation of
audiences. In addition, advertisers have increased access to data and greater ability to reach customers directly
with new digital technologies, which may contribute to reduced spending on advertising. Digital advertising
revenues have not offset a significant portion of lost print advertising revenue and Torstar may not be successful in
replacing these revenues in the future.
In response to this shift to digital media, Torstar has been making significant investments in its digital businesses
over the past several yearsThe digital businesses in Torstar’s Media Segment operate in a rapidly evolving and
highly dynamic competitive environment. Rapid changes in technology and digital media options can result in
consumer demand moving in unanticipated directions. The increasing number of digital media options available
on the internet, through mobile devices, through social networking tools and through other digital platforms is
significantly expanding consumer choice resulting in shifting audience preferences. Torstar may not be able to
TORSTAR CORPORATION 2013 ANNUAL REPORT 41
TORSTAR - Management’s Discussion and Analysis
successfully respond to these rapid changes and increasing number of digital media options. In addition, some
of Torstar’s digital businesses are in an early stage of development and may not achieve profitability.
Torstar’s existing and potential future competitors in the digital businesses range from start up operations with low
cost structures to global players that may have access to greater operational, financial and other resources than
Torstar. Torstar may be unable to successfully exploit new and existing technologies, distinguish its products and
services from those of its competitors and continue to develop or adapt to new distribution methods that provide
competitive user experiences.
Content and readership
Print readership levels, in addition to generating circulation/subscription revenues, have traditionally been an
important factor in the ability of a newspaper to generate advertising revenues. General trends impacting the
newspaper industry, including, changes in everyday lifestyle and technology have meant that people, and
particularly younger audiences are devoting less time to reading print newspapers than they once did. Partially
offsetting this decline in print readership is an increase in online readership. While online readership appears to
be an important factor in the ability of a newspaper to generate advertising revenue, it may have a negative
impact on print circulation/subscription volumes and revenues and also on readership.
Torstar has implemented a pay model for online readership for thestar.com, thespec.com, guelphmercury.com and
therecord.com. Torstar’s ability to build and maintain a paid subscriber base for its digital news content will depend
on many factors, including continued market acceptance of Torstar’s pay model, consumer habits, the timely
development and evolution of adequate and adaptable digital infrastructure, practices of delivery platforms, pricing,
available alternatives, delivery of high-quality journalism and content and other factors. While the implementation of
the pay model may increase subscriber revenue, Torstar also faces the risk of reduced online readership levels and
page views which may have a negative impact on advertising revenues.
Torstar’s reputation for quality journalism and content is an important factor in maintaining readership levels. Torstar
strives to provide content in print and online that is perceived as reliable, relevant and entertaining by readers and
advertisers. Public preferences and tastes, general economic conditions, the availability of alternative sources of
content and the newsworthiness of current events, among other intangible factors, may also contribute to the
fluctuation in readership levels, and accordingly, limit the ability of Torstar to generate advertising and
circulation/subscription revenue.
With the increase in alternative digital content providers, Torstar faces the risk that it may not be able to increase
its online traffic sufficiently and retain a base of frequent visitors to its websites and applications. If traffic levels
decline or stagnate, Torstar may not be able to create sufficient advertiser interest in its digital businesses.
Torstar may incur additional marketing costs to attract subscribers and increase its online traffic and may not be
able to recover these costs through online circulation/subscription and advertising revenues.
Maintenance of satisfactory circulation/subscription, readership and online traffic levels attractive to advertisers
cannot be guaranteed.
Economic conditions
Advertising revenue in Torstar’s newspapers and digital properties is affected by a variety of factors, including
prevailing economic conditions and the level of consumer confidence. Adverse economic conditions generally, and
economic weakness and uncertainty in the regions in which Torstar operates specifically, have had and may
continue to have a negative impact on the advertising industry and on Torstar’s operations. Local downturns in the
general economic environments may cause Torstar’s customers to reduce the amounts they spend on advertising
which could result in a decrease in demand for advertising and lower advertising rates.
Book Publishing Segment – Revenue Risks
Revenue from Torstar’s Book Publishing Segment accounted for approximately 29% of Torstar’s total segmented
revenue in the year ended December 31, 2013. Book Publishing revenue is generated from Harlequin. Harlequin
sells books through the retail channel, in stores and online, and directly to the consumer through its direct mail
businesses and from its internet sites (in North America – Harlequin.com).
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TORSTAR - Management’s Discussion and Analysis
Competition and Price
Harlequin competes not only with other book publishers but also with other providers of entertainment including
television, music, movies, games and magazines. These global markets are very competitive and this is not
expected to change in the future. In addition, Harlequin competes in a market that includes a number of very
large competitors who may have greater resources than Harlequin. Online retailers have also entered into the
book publishing business creating additional competition, including increased price competition among book
retailers in both printed and digital formats.
In addition, a number of digital-only publishers and other digital distribution models are emerging and authors
have greater opportunities to self-publish, often at lower prices than traditional publishers. The proliferation of
less expensive, and free, self-published works could negatively impact Harlequin’s revenues in the future.
The low cost of digitization has also led to a proliferation in the number of digital titles available and increased
competition. While Harlequin has been digitizing its backlist for a number of years and now has approximately
20,000 digital titles available for sale in North America, there is no assurance that Harlequin will be able to
successfully compete with the proliferation in the number of digital titles available. In addition, digitization could
increase the risk associated with the illegal unauthorized replication and distribution of digital products.
Authors
Harlequin’s single title revenues are dependent on the popularity of its authors. Harlequin enters into contracts
with authors for the right to publish an author’s book or a certain number of books. There is no guarantee that an
author will enter into a new contract for future books and from time to time, a popular author may decide to
publish future books with another publisher. There is also no guarantee that an author will continue to be popular
with readers or that future titles will be successful. In addition, as the digital book market grows, it is increasingly
possible for authors to self-publish and authors may demand higher royalties which could have a negative impact
on Harlequin’s costs.
Retail market
The significant growth of the digital book market in recent years has resulted in a contraction of the retail print
market. Distribution for the retail print markets is also relatively concentrated with a small number of wholesalers
and/or retailers in any market. These factors increase the risk of bankruptcy of a major retail customer or a
distributor which could disrupt the distribution channels, increase competition for shelf-space, increase costs
and/or result in bad-debt write-offs.
Books sold through the retail print channel are sold to wholesalers and retailers with a right of return leaving the
ultimate sales risk with Harlequin. In order to reflect the ability of the retailers to return books that they do not
sell, a provision for returns is made when revenue is recognized (See additional information in the Critical
Accounting Policies and Estimates section of this MD&A). The provision is adjusted as actual returns are
received over time. The difference between the initial estimate of returns and the actual returns realized has an
impact on Harlequin’s results during subsequent periods as returns are received. This impact could be
significant.
Within the global digital marketplace, there is the risk that online retailer control could become increasingly
concentrated. In the U.S., over 80% of Harlequin’s 2013 digital sales were with two online retailers. The impact
of such concentration is currently uncertain but it could have a negative impact on Harlequin’s sales volumes,
pricing and costs.
Direct-to-consumer market
A key revenue risk for Harlequin’s direct-to-consumer business, which consists of books sold via direct mail, is not
being able to maintain its customer base. A significant source of new customers has historically been through
direct mail offers. For more than a decade, the direct marketing industry has faced considerable challenges from
a lack of available mailing lists, regulation and competitive pressure from digital and retail channels. This has led
to a decline in existing customers and has made the acquisition of new customers through direct mail offers
difficult and more costly. Harlequin has responded to these challenges in a number of ways including new,
innovative offers and the use of its internet site, Harlequin.com, to retain and attract new customers. Despite this,
the direct mail customer base has declined over time and is expected to continue to do so in the future.
TORSTAR CORPORATION 2013 ANNUAL REPORT 43
TORSTAR - Management’s Discussion and Analysis
Economic conditions
Historically, Harlequin’s book publishing revenue has not been as sensitive to economic conditions as has
advertising revenue for the Media Segment. While consumers generally reduce spending during economic
downturns, book sales have historically tended to be relatively more stable. There is no assurance that this will
continue to be the case in the future.
Harlequin has also benefited from geographic diversification to lessen the impact of changes in the general
economic performance in any one individual country, although it does have significant exposure to the economic
conditions in the U.S. market. In 2013, 5% of Harlequin’s revenues (as measured on a segmented basis) were
derived from Canada, 48% from the U.S., and 47% from all other markets (the largest of which were Japan,
Germany, the U.K., Nordic, Australia and France).
Labour Disruptions
Torstar has a number of collective agreements at its newspaper operations that have historically tied annual wage
increases to the cost of living. The newspapers face the risk associated with future labour negotiations and the
potential for business interruption should a strike, lockout or other labour disruption occur. Such a disruption may
lead to lost revenues and could have an adverse effect on Torstar’s business.
The Toronto Star has approximately 780 staff covered by four collective agreements. The largest agreement
covers approximately 430 employees at One Yonge Street, Toronto. This collective agreement will expire at the
end of December 2016. There are three agreements covering approximately 350 employees at the Toronto
Star’s Vaughan Press Centre. One agreement covering approximately 310 employees and another covering
approximately 20 employees will expire in December 2014. One other agreement, covering approximately 20
employees expired in December 2013 and negotiations are expected to commence shortly.
Sing Tao has two collective agreements covering approximately 125 employees that will expire in December
2015. Metro’s Toronto operations have a collective agreement covering approximately 65 employees that will
expire in early March of 2016.
Metroland Media Group has a total of 20 collective agreements covering approximately 715 employees. There
are ten collective agreements covering approximately 275 employees within the community newspapers. Three
agreements covering approximately 50 employees expired in November 2013 and two agreements covering
approximately 140 employees expired in December 2013 and negotiations have commenced. Three agreements
covering approximately 60 employees will expire in December 2014 and two agreements covering approximately
25 employees will expire in August 2015.
At the Metroland Media Group daily newspapers, there are ten agreements covering approximately 440
employees. One agreement covering approximately 10 employees at the Guelph Mercury will expire in May 2014.
One agreement covering approximately 65 employees at the Hamilton Spectator and four agreements covering
approximately 115 employees at the Waterloo Region Record will expire in December 2014. Two agreements
covering approximately 170 employees at the Hamilton Spectator will expire at the end of December 2015. Two
agreements covering approximately 80 employees at the Hamilton Spectator will expire in May 2016.
The Book Publishing Segment does not have any collective agreements in place.
Cost Structure
Torstar’s businesses are characterized by a relatively high fixed cost structure. As a result, it may be very difficult to
significantly reduce costs in a period of declining revenues. Accordingly, a relatively small change in revenue could
have a disproportionate effect on Torstar’s financial performance.
Over the last several years, Torstar has reduced costs in the Media Segment in a number of ways including by
reducing staff and outsourcing certain services. The level of unionization at the newspaper operations could impact
the ability of Torstar to respond quickly to downturns in the economy or structural shifts in Torstar’s business that
negatively impact revenue. Current and future cost savings initiatives could be impacted by the level of
unionization, existing third-party suppliers and service providers and Torstar’s ability to successfully outsource
additional components of its business operations in the future (see “Dependence on Third-Party Suppliers and
TORSTAR CORPORATION 2013 ANNUAL REPORT 44
TORSTAR - Management’s Discussion and Analysis
Service Providers” below). In addition, reductions in staff and cost control measures could impact our ability to
attract and retain key employees (see “Dependence on Key Personnel” below).
Loss of Reputation
Torstar, its customers, shareholders and employees place considerable reliance on Torstar’s good reputation.
Torstar’s ability to maintain its existing customer relationships and generate new customers depends greatly on the
quality of its services, brand reputation and business continuity. The loss or tarnishing of the reputation of Torstar or
any of its significant businesses through negative publicity or otherwise, whether true or not, could have an adverse
impact on the business, operations or financial condition of Torstar.
Newsprint Costs
Newsprint is the single largest raw material expense for Torstar’s Media Segment and, after salaries and benefits
expense, represents the most significant operating cost for this Segment. Newsprint is priced as a commodity with
the price varying widely from time to time. In 2013, the price that Torstar paid for newsprint was on average less
than the price paid in 2012. Torstar’s newspapers consume approximately 90,000 tonnes of newsprint each year.
The pulp and paper industry has faced difficulties over the past few years with some newsprint suppliers
experiencing financial instability. Should there be a reduction in the number of suppliers, Torstar could face a risk
in supply of newsprint and/or increased prices. Torstar primarily sources newsprint from three main suppliers.
Pursuant to arrangements with two suppliers, Torstar has negotiated a pricing band for the majority of its
newsprint requirements for 2014 and 2015 at prices less than those realized in 2013. There can be no assurance
that Torstar will be able to extend these arrangements in future years or that Torstar’s newspapers will not be
exposed in the future to volatile or increased newsprint costs which could have an adverse effect on Torstar’s
financial performance.
Foreign Operations and Foreign Exchange
Harlequin’s foreign operations expose Torstar to the risk of doing business abroad, including complying with
unfamiliar laws and regulations, effectively managing and staffing foreign operations, successfully navigating local
customs and practices, adapting to currency exchange rate fluctuations and complying with restrictions on
repatriation of funds. Adverse developments in any of these areas could have an adverse impact on our
business, financial condition and results of operations.
As an international publisher, approximately 95% of Harlequin’s revenues (approximately 27% of Torstar’s
operating revenues) are earned in currencies other than the Canadian dollar. As a result, Harlequin’s revenues
and operating earnings are affected by changes in foreign exchange rates relative to the Canadian dollar. The
most significant risk is from changes in the U.S.$/Cdn.$ exchange rate. Harlequin also has exposure to many
other currencies, the most significant of which are the Euro, Yen and Pound Sterling.
To offset some of this exposure, Torstar regularly enters into forward foreign exchange contracts to sell U.S.
dollars. From time to time, Torstar may also enter into forward foreign exchange contracts to hedge other
currencies (Euro, Yen, Pound Sterling). (See additional information on foreign exchange risks in the Financial
Instruments section of this MD&A and in Note 15 to Torstar’s consolidated financial statements.)
Credit Risk
In the normal course of business, Torstar is exposed to credit risk from its accounts receivable from customers.
The carrying amount for accounts receivable is net of applicable book revenue provisions and allowances for
doubtful accounts. The allowances for doubtful accounts are estimated based on past experience, specific risks
associated with the customer and other relevant information.
Under a billing and collection agreement with a third party, the Book Publishing Segment has a net receivable of
$18.6 million (U.S. $17.5 million) as at December 31, 2013 related to its U.S. sales. To date, the credit risk
associated with this balance has been mitigated by the financial stability and payment history of the third party.
Restrictions Imposed by Existing Credit Facilities, Debt Financing and Availability of Capital
The agreements governing certain indebtedness of Torstar impose a number of restrictions on Torstar. These
include restrictions on the payment of dividends other than on a basis consistent with Torstar’s current dividend
TORSTAR CORPORATION 2013 ANNUAL REPORT 45
TORSTAR - Management’s Discussion and Analysis
policy (which does not include extraordinary dividends). The agreements also require compliance with certain
financial covenants in order for Torstar’s debt to remain outstanding and impose restrictions on Torstar in
circumstances where Torstar is in default pursuant to its credit facilities. These covenants include the
requirement not to exceed a maximum level of debt compared to cash flow and a minimum interest coverage test.
In addition, Torstar cannot experience a material adverse change in its business. Failure to comply with these
restrictions and financial covenants could trigger early payment obligations and could have an adverse effect on
Torstar. A full description of these restrictions and financial covenants can be found in the amended and restated
loan agreement filed on www.sedar.com.
Pension Fund Obligations
Relative to its size, and when compared to other companies, Torstar has large pension liabilities, funding
requirements and costs. The funded status of Torstar’s defined benefit pension plans and its contribution
obligations may be impacted by several factors, including changes to pension laws and regulation, changes to
benefits provided to plan participants, changes to actuarial assumptions and methods, changes in participant
demographics and plan experience, the plans being closed to new members and changes to prevailing economic
conditions, including the discount rate used to measure Torstar’s contribution obligations, the rate of return on
plan assets, long-term interest rates and other changes to economic conditions. Changes in investment
performance or in a change in the mix of plan assets may result in increases or decreases in the valuation of plan
assets, or in a change to the expected rate of return on plan assets. Significant variations in plan performance
and changes to any of the foregoing factors could produce further underfunding in Torstar’s defined benefit
pension plans as well as increases to the net pension cost in subsequent financial years that could require
increased funding contributions to those plans, which could have an adverse effect on Torstar’s cash flows,
liquidity and financial condition. Recently, Torstar has taken steps to minimize its exposure to movements in the net
defined pension benefit obligation as discussed in Section 7 of this MD&A.
As at December 31, 2013 Torstar had a net asset of $34.3 million for its registered defined benefit pension plans.
The most significant group of Torstar’s registered defined benefit pension plans (in terms of assets and
obligations) completed the preparation of actuarial reports as of September 1, 2013. Torstar’s funding for these
registered defined benefit pension plans was $63.4 million in 2013. Funding for 2014 is expected to be
approximately $40.0 million. There is no guarantee that these funding requirements will not increase in the
future (whether due to changes in long–term interest rates, lower than expected pension fund returns, changes in
the discount rate used to assess the pension plan obligations, actuarial losses or otherwise).
In addition to the registered defined benefit pension plans, Torstar also has an unregistered, unfunded defined
benefit pension plan that provides pension benefits to eligible senior management executives of Torstar (liability
of $26.3 million at December 31, 2013) and a post employment benefits plan that provides health and life
insurance benefits to certain grandfathered employees, primarily in the newspaper operations (liability of $42.8
million at December 31, 2013). These plans are being funded as payments are made.
Reliance on Printing Operations
The newspaper operations of Torstar place considerable reliance on the functioning of its printing operations for the
printing of their various publications, with particular emphasis placed on the Toronto Star’s Vaughan Press Centre,
which primarily supports the Toronto Star’s printing needs. In the event that any of the print facilities experiences a
shutdown or disruption, Torstar will attempt to mitigate potential damage by shifting the printing to its remaining
facilities or outsourcing such work to a third party commercial printer. However, given Torstar’s reliance on such
facilities, such a shutdown or disruption could result in Torstar being unable to print some publications, and
consequently could have an adverse effect.
Torstar also relies on the adequacy of third-party printing arrangements for its book publishing operations in North
America and worldwide. In the event any existing arrangements change or cease to be available, Torstar would
attempt to mitigate the situation by using an alternative supplier or printing location. However, there can be no
assurance that such an event would not have an adverse effect on Torstar.
Reliance on Technology and Information Systems
Torstar places considerable reliance upon technology and information systems including those of third party service
providers. Despite Torstar’s security measures and those of its third-party service providers, Torstar’s systems
TORSTAR CORPORATION 2013 ANNUAL REPORT 46
TORSTAR - Management’s Discussion and Analysis
may be vulnerable to interruption, damage or failure from loss of power, hacking or other unauthorized access,
viruses, worms or other destructive or disruptive software, process breakdowns, human error, denial of service
attacks, advanced persistent threats, malicious social engineering or other similar events. While Torstar has
implemented controls and taken other preventative actions to protect Torstar’s systems against attacks, Torstar
can give no assurance that these controls and preventative actions will be effective. The occurrence of any of
these events could have an adverse effect on Torstar’s operations and revenues, including through a disruption of
our services or disclosure of personal or confidential information, which could harm Torstar’s reputation, require
Torstar to expend resources to remedy such a breach or defend against further attacks or subject us to liability
under privacy or other applicable laws.
The media industry has experienced and is continuing to experience rapid and significant technological changes.
In order to be able to compete, Torstar needs to be able to manage the changes in new technologies and be able
to acquire, develop or integrate them. Torstar’s ability to successfully manage the implementation of new
technologies could have an adverse effect on Torstar’s ability to successfully compete in the future.
Interest Rates
Torstar has long-term debt in the form of bankers’ acceptances issued under its long-term bank credit facility.
This long-term debt is issued at market rates plus a spread specific to Torstar. In addition to the exposure to
changes in Torstar’s credit rating and the specific borrowing spread, Torstar is exposed to fluctuations in market
interest rates on its bankers’ acceptances that are issued at floating rates. From time to time, Torstar manages
this risk through the use of interest rate swap contracts to fix the interest rate on a portion of its outstanding debt.
Torstar remains exposed to fluctuations in interest rates on the balance of its outstanding debt.
Availability of Insurance
Torstar has insurance, including media liability, property and casualty and directors’ and officers’ liability insurance,
in place to address certain material insurable risks. Such insurance is subject to certain coverage limits, exclusions
and deductibles that Torstar believes are reasonable given the cost of procuring insurance. There is no assurance
that such insurance will continue to be available on an economically feasible basis, that all events that could give
rise to a loss or liability are insurable, that amounts owing from insurers will be collected or that the insurance
coverage will be sufficient to cover each and every material loss or claim that may occur involving Torstar’s
operations or assets.
Litigation
Torstar is involved in various legal actions, which arise in the ordinary course of business. These actions include
the litigation as described under the heading “Legal Proceedings” in Torstar’s most recent Annual Information Form.
In particular, given the nature of Torstar’s businesses, Torstar has had, and may have, litigation claims filed which
are related to the publication of its editorial and other content, copyright or trademark infringement, privacy, personal
injury, product liability, breach of contract, unfair competition or other legal claims. Although Torstar maintains
insurance for many of these types of claims, there can be no assurance that insurance will be available for all such
claims. In addition, there can be no assurance as to the outcome of any future litigation, proceedings or
investigations or that the outcome will not be adverse to Torstar nor have a negative impact on Torstar’s results.
In addition, Torstar could incur significant costs in investigating and defending such claims, even if ultimately
found not to be liable.
Government Regulations
General
Torstar’s businesses are subject to a variety of laws and regulations, including laws applicable generally to
business and environmental, privacy, communications and e-commerce laws. Torstar may also be notified from
time to time of additional laws and regulations which governmental organizations or others may claim should be
applicable to certain of its businesses. If Torstar is required to alter its business practices as a result of any laws
and regulations, revenue could decrease, costs could increase and/or certain of Torstar’s businesses could
otherwise be harmed. In addition, the costs and expenses associated with defending any actions related to such
additional laws and regulations and any payments of related penalties, judgements or settlements could adversely
impact certain of Torstar’s businesses.
TORSTAR CORPORATION 2013 ANNUAL REPORT 47
TORSTAR - Management’s Discussion and Analysis
E-Commerce, Privacy and Confidential Information
Laws relating to privacy, anti-spam, communications, data protection, e-commerce, direct marketing and digital
advertising and use of public records have become more prevalent in recent years. Legislation and regulations,
including changes to the manner in which such legislation and regulations are interpreted by courts in Canada, the
United States and other jurisdictions, may impose limits on the collection and use of certain kinds of information and
the distribution of certain communications. In addition, the costs of compliance and/or non-compliance with
industry or legislative initiatives to address consumer protection concerns or other related issues such as
copyright infringement, unsolicited commercial e-mail, cyber-crime and access could adversely impact certain of
Torstar’s businesses.
In connection with many of its businesses, Torstar routinely obtains personal and confidential information from its
customers. The potential misuse or dissemination of such information could violate applicable laws, cause damage
to Torstar’s relationships with its customers and could result in legal actions. See also the risks and uncertainties
described above related to “Reliance on Technology and Information Systems”.
Environmental
Torstar is subject to a variety of environmental laws concerning, among other things, emissions to the air, water and
sewer discharges, handling and disposal of wastes, recycling, the use of recycled materials, or otherwise relating to
the protection of the environment. There have been considerable changes to environmental laws and regulations in
recent years, and such laws and regulations are expected to continue to change. Compliance with new
environmental laws and regulations may subject Torstar to significant costs and a failure to comply with present or
future laws or regulations could have an adverse effect on Torstar. While Torstar has an environmental policy and
environmental committee in place to assist in monitoring compliance with environmental legislation, there can be no
assurance that all environmental liabilities have been identified or that expenditures will not be required to meet
future legislation.
Dependence on Key Personnel
Torstar is dependent to a large extent upon the continued services of its senior management team and other key
employees including editorial, technical and sales personnel. There is intense competition for qualified managers
and skilled employees and Torstar’s failure to recruit, train and retain such employees could have an adverse effect
on its business, financial condition or operating results.
Dependence on Third-Party Suppliers and Service Providers
Torstar relies on third-party suppliers and service providers for certain key services including product distribution,
call center services, certain information technology functions and certain page production, printing, advertising
production, and sales and content supply requirements. Torstar may outsource additional components of its
business operations in the future. Torstar’s business or operations could be interrupted or otherwise adversely
impacted by its third-party suppliers and service providers experiencing business difficulties or interruptions, the
suppliers or service providers being unable to provide services as anticipated or by Torstar being unable to
integrate or effectively utilize the services of the third-party suppliers and service providers.
Intellectual Property Rights
Torstar places considerable importance on the protection of its intellectual property rights. Torstar’s businesses
generate a significant volume of content every day, including text, photographs, images, graphics and interactive
content such as third-party posts and links. On occasion, third parties may infringe upon or contest Torstar’s rights.
While we have taken steps to ensure that procedures are in place to clear rights and vet content, there remains a
risk that some of the content generated may be defamatory or infringing. There can be no assurance that Torstar’s
actions will be adequate to prevent the infringement of Torstar’s intellectual property rights, or protect Torstar against
claims by third parties. If third parties were to contest the validity or scope of Torstar’s intellectual property rights or
to allege violation of their rights, such challenges could result in the limitation or loss of intellectual property rights
and other damages and regardless of their validity, such claims could cause Torstar to incur significant costs in
investigating and defending such claims and have a negative impact on Torstar’s results. See also the risks and
uncertainties described above related to “Litigation”.
TORSTAR CORPORATION 2013 ANNUAL REPORT 48
TORSTAR - Management’s Discussion and Analysis
Impairment
Economic, market, legal, regulatory, competitive, customer, contractual and other factors may affect the value of
Torstar’s long-lived assets, intangible assets and goodwill. If any of these factors impair the value of these assets,
IFRS requires Torstar to reduce their carrying value and recognize an impairment charge. This would reduce
Torstar’s reported assets and earnings in the year the impairment charge is recognized.
In addition, Torstar holds investments in businesses that it does not hold a controlling interest in and Torstar does
not exercise control over the management, strategic direction or daily operations of these businesses. A change
in the operation of these businesses could require Torstar to record its share of any asset or goodwill impairment
recorded by these businesses and could require Torstar to take a charge to earnings in order to reduce its
carrying value.
Business Development and Acquisition Integration
Torstar has in the past, and may in the future, seek to make opportunistic or strategic acquisitions to expand its
existing businesses or to participate in a new business. There is no guarantee that any such opportunities will be
available for Torstar or that they will be available at an appropriate price. In addition, Torstar may not be
successful in integrating new businesses, could incur unforeseen costs in connection with the acquisition of a
business or may not fully realize anticipated synergies, any of which could have an adverse effect on financial
performance.
Product Revenue and Product Liability
Metroland Media Group’s product business had been diminishing over the past few years and this trend may
continue in the future. Additionally, Torstar may be exposed to potential liability in connection with the sale and
promotion of products (including claims from purchasers, distributors, regulators and law enforcement) which could
include claims for personal injury, wrongful death, damage to personal property, claims relating to misrepresentation
of product features and benefits or violation of applicable laws. Although Torstar maintains insurance for many of
these types of claims, there can be no assurance that insurance will be available or sufficient for all such claims. In
addition, there can be no assurance as to the outcome of any future litigation, proceedings or investigations or
that the outcome will not be adverse to Torstar nor have a negative impact on Torstar’s results. In addition,
Torstar could incur significant costs in investigating and defending such claims, even if ultimately found not to be
liable.
Control of Torstar by the Voting Trust
More than 98% of Torstar’s Class A shares are held in a Voting Trust pursuant to a Voting Trust Agreement, which
joins together seven groups of shareholders. Under the Voting Trust Agreement, each shareholder group is entitled
to appoint a Voting Trustee. The Voting Trustees exercise various powers and rights, including among others the
right to vote in the manner as determined by a majority of the Voting Trustees, all of the Class A shares of Torstar
held by the members of the Voting Trust. The Class A shares are the only class of issued shares carrying the right
to vote in all circumstances. Accordingly, the Voting Trust, through a single ballot, effectively elects the Torstar
Board of Directors and controls the vote on any matters submitted to a vote of shareholders of Torstar.
TORSTAR CORPORATION 2013 ANNUAL REPORT 49
N OT E S
2013
ANNUAL REPORT
2013
ANNUAL REPORT
TORSTAR CORPORATION 2013 ANNUAL REPORT (cid:24)(cid:19)
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TORSTAR - Consolidated Financial Statements
Consolidated Financial Statements – Contents
Management’s Report on Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the 2013 Consolidated Financial Statements:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
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24
25
26
27
28
29
Corporate Information
Significant Accounting Policies
Segmented Information
Investments in Subsidiaries
Inventories
Investments in Joint Ventures
Investments in Associated Businesses
Property, Plant and Equipment
Intangible Assets
Goodwill
Impairment of Assets
Other Assets
Income Taxes
Long-term Debt
Financial Instruments
Capital Management
Provisions
Other Liabilities
Employee Future Benefits
Share Capital
Share-based Compensation Plans
Accumulated Other Comprehensive Loss
Acquisitions and Investments
Gain (Loss) on Sale of Assets
Investment Write-down and Loss
Other Non-Cash Items Provided By (Used In) Operating Activities
Commitments and Contingencies
Related Party Transactions
Effects of Changes in Accounting Standards
TORSTAR CORPORATION 2013 ANNUAL REPORT 51
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TORSTAR - Consolidated Financial Statements
MANAGEMENT’S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for preparation of the consolidated financial statements, notes hereto and other
financial information contained in this annual report. The consolidated financial statements have been prepared
in conformity with International Financial Reporting Standards using the best estimates and judgements of
management, where appropriate. Information presented elsewhere in this annual report is consistent with that in
the consolidated financial statements.
Management is also responsible for maintaining a system of internal control designed to provide reasonable
assurance that assets are safeguarded and that accounting systems provide timely, accurate and reliable
information.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial
reporting and internal control. The Board is assisted in exercising its responsibilities by the Audit Committee of
the Board. The Committee meets quarterly with management and the internal and external auditors, and
separately with the internal and external auditors, to satisfy itself that management’s responsibilities are properly
discharged, and to discuss accounting and auditing matters. The Committee reviews the consolidated financial
statements and recommends approval of the consolidated financial statements to the Board.
The internal and external auditors have full and unrestricted access to the Audit Committee to discuss their audits
and their related findings as to the integrity of the financial reporting process.
David P. Holland
President and Chief Executive Officer
March 4, 2014
Lorenzo DeMarchi
Executive Vice-President and Chief Financial Officer
TORSTAR CORPORATION 2013 ANNUAL REPORT 52
TORSTAR - Consolidated Financial Statements
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Torstar Corporation
We have audited the accompanying consolidated financial statements of Torstar Corporation, which comprise the
consolidated statement of financial position as at December 31, 2013 and 2012 and January 1, 2012, and the
consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended
December 31, 2013 and 2012, and a summary of significant accounting policies and other explanatory
information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Torstar Corporation as at December 31, 2013 and 2012 and January 1, 2012 and its financial performance and its
cash flows for the years ended December 31, 2013 and 2012 in accordance with International Financial Reporting
Standards.
Toronto, Canada
March 4, 2014
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
TORSTAR CORPORATION 2013 ANNUAL REPORT 53
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
As at
December 31 2013
As at
December 31 2012
Restated*
As at
January 1 2012
Restated*
Assets
Current:
Cash and cash equivalents
Receivables (note 15)
Inventories (note 5)
Derivative financial instruments (note 15)
Prepaid expenses and other current assets
Prepaid and recoverable income taxes
Total current assets
Investments in joint ventures (note 6)
Investments in associated businesses (note 7)
Property, plant and equipment (note 8)
Intangible assets (note 9)
Goodwill (note 10)
Other assets (note 12)
Employee benefits assets (note 19)
Deferred income tax assets (note 13)
Total assets
Liabilities and Equity
Current:
Bank overdraft
Current portion of long-term debt
Accounts payable and accrued liabilities
Derivative financial instruments (note 15)
Provisions (note 17)
Income taxes payable
Total current liabilities
Long-term debt (note 14)
Derivative financial instruments (note 15)
Provisions (note 17)
Other liabilities (note 18)
Employee benefits (note 19)
Deferred income tax liabilities (note 13)
Equity:
Share capital (note 20)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (note 22)
Total equity attributable to equity shareholders
Minority interests
Total equity
Total liabilities and equity
$19,151
261,485
29,368
47,872
3,765
361,641
80,901
40,215
150,665
73,942
533,982
11,465
44,532
51,369
$1,348,712
$1,741
202,888
911
20,807
9,810
236,157
175,898
4,125
16,251
12,425
82,641
24,431
398,605
17,383
385,589
(7,603)
793,974
2,810
796,784
$1,348,712
$24,827
263,606
31,637
1,272
43,254
10,775
375,371
91,258
32,921
161,872
87,475
596,703
8,323
$36,450
265,655
34,600
367
46,269
1,929
385,270
107,512
16,935
170,454
85,865
598,603
1,798
89,965
$1,443,888
100,246
$1,466,683
$9,767
195,822
15,649
11,016
232,254
178,027
7,018
14,520
25,362
255,434
7,593
397,425
16,057
317,033
(9,699)
720,816
2,864
723,680
$1,443,888
$7,413
196,191
194,237
22,057
17,118
437,016
8,761
16,906
26,290
264,027
7,419
395,334
14,828
301,863
(8,286)
703,739
2,525
706,264
$1,466,683
(see accompanying notes)
*Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012 and reflect
adjustments made as detailed in Note 29.
ON BEHALF OF THE BOARD
John Honderich
Director
Paul Weiss
Director
TORSTAR CORPORATION 2013 ANNUAL REPORT 54
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Income
(Thousands of Canadian Dollars except per share amounts)
Year ended December 31
2013
2012
Restated*
Operating revenue
$1,308,791
$1,406,768
Salaries and benefits
Other operating costs
Amortization and depreciation (notes 8 and 9)
Restructuring and other charges (note 17)
Impairment of assets (note 11)
Operating profit
Interest and financing costs (note 14(c))
Foreign exchange
Adjustment to contingent consideration (note 17)
Income (loss) from joint ventures (note 6)
Income (loss) of associated businesses (note 7)
Gain (loss) on sale of assets (note 24)
Investment write-down and loss (note 25)
Income (loss) before taxes
Income and other taxes (note 13)
Net income (loss)
Attributable to:
Equity shareholders
Minority interests
(480,297)
(666,594)
(36,266)
(37,219)
(77,094)
11,321
(17,460)
(1,506)
979
(2,578)
2,345
(152)
(562)
(7,613)
(19,800)
($27,413)
($27,984)
$571
(499,485)
(721,541)
(35,273)
(17,389)
(2,003)
131,077
(19,906)
(248)
(258)
2,183
(2,802)
6,080
(93)
116,033
(33,100)
$82,933
$82,344
$589
Net income (loss) attributable to equity shareholders per
Class A (voting) and Class B (non-voting) share (note
20(c)):
Basic and Diluted
($0.35)
$1.03
(see accompanying notes)
*Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012
and reflect adjustments made as detailed in Note 29.
TORSTAR CORPORATION 2013 ANNUAL REPORT 55
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Comprehensive Income
(Thousands of Canadian Dollars)
Net income (loss)
Other comprehensive income (loss) to be reclassified to net income
(loss) in subsequent periods:
Year ended December 31
2013
2012
Restated*
($27,413)
$82,933
Realized foreign currency translation adjustment for joint ventures (no
income tax effect) (note 6)
Unrealized foreign currency translation adjustment for joint ventures
(no income tax effect) (note 6)
54
240
(183)
Unrealized foreign currency translation adjustment (no income tax
effect)
6,658
(4,919)
Unrealized foreign currency translation adjustment for associated
businesses (no income tax effect) (note 7)
Net movement on available-for-sale financial assets (no income tax
effect)
Net movement on cash flow hedges
Income tax effect
Unrealized gain (loss) on hedge of net investment
Income tax effect
Other comprehensive income (loss) that will not be reclassified to net
income (loss) in subsequent periods:
24
6
710
(100)
(5,496)
2,096
123
2,648
(600)
1,768
(250)
(1,413)
Actuarial gain (loss) on employee benefits (note 19)
Income tax effect
184,546
(47,600)
(35,038)
9,200
Actuarial gain on employee benefits for associated businesses (no
income tax effect) (note 7)
Other comprehensive income (loss), net of tax
Comprehensive income, net of tax
Attributable to:
Equity shareholders
Minority interests
1,512
138,458
$140,554
$113,141
$112,570
$571
(25,838)
($27,251)
$55,682
$55,093
$589
(see accompanying notes)
*Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012
and reflect adjustments made as detailed in Note 29.
TORSTAR CORPORATION 2013 ANNUAL REPORT 56
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Changes in Equity
(Thousands of Canadian Dollars)
Share
capital
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total
attributable to
equity
shareholders
Minority
interests
Total
equity
At January 1, 2012
$395,334
$14,828
$301,863
($8,286)
$703,739
$2,525
$706,264
Net income
Other comprehensive loss
Total comprehensive
income (loss)
Dividends (note 20)
Issue of share capital –
other (note 20)
Exercise of share options
(note 20)
Share-based
compensation expense
Distribution
282
1,331
478
(65)
1,294
82,344
(25,838)
(1,413)
82,344
(27,251)
589
82,933
(27,251)
56,506
(1,413)
55,093
589
55,682
(41,336)
(41,054)
(41,054)
1,331
413
1,294
(250)
1,331
413
1,294
(250)
At December 31, 2012
$397,425
$16,057
$317,033
($9,699)
$720,816
$2,864
$723,680
Net income (loss)
Other comprehensive
income
Total comprehensive
income
Dividends (note 20)
Issue of share capital –
other (note 20)
Exercise of share options
(note 20)
Share-based
compensation expense
Distribution
457
723
(27,984)
138,458
110,474
(41,918)
2,096
2,096
(27,984)
571
(27,413)
140,554
140,554
112,570
571
113,141
(41,461)
723
(41,461)
723
1,326
1,326
(625)
1,326
(625)
At December 31, 2013
(see accompanying notes)
*Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012
and reflect adjustments made as detailed in Note 29.
$385,589
$793,974
$398,605
($7,603)
$17,383
$2,810
$796,784
TORSTAR CORPORATION 2013 ANNUAL REPORT 57
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
Year ended December 31
Cash was provided by (used in)
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash
Effect of exchange rate changes
Cash, beginning of year
Cash, end of year
Operating activities:
Net income (loss)
Amortization and depreciation (notes 8 and 9)
Deferred income taxes (note 13)
Loss (income) from joint ventures (note 6)
Distributions from joint ventures (note 6)
Loss (income) of associated businesses (note 7)
Dividend from associated businesses (note 7)
Impairment of assets (note 11)
Non-cash employee benefit expense (note 19)
Employee benefits funding (note 19)
Other (note 26)
Decrease (increase) in non-cash working capital
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment and intangible assets
(notes 8 and 9)
Investment in joint ventures
Investment in associated businesses
Acquisitions and portfolio investments (note 23)
Proceeds from sale of assets
Other
Cash used in investing activities
Financing activities:
Issuance of bankers’ acceptances
Repayment of bankers’ acceptances
Dividends paid
Exercise of share options
Other
Cash used in financing activities
Cash represented by:
Cash
Cash equivalents – short-term deposits
Cash and cash equivalents
Bank overdraft
2013
$80,732
(28,720)
(50,230)
1,782
568
15,060
$17,410
($27,413)
36,266
9,400
2,578
7,934
(2,345)
954
77,094
33,379
(67,232)
(617)
69,998
10,734
$80,732
($23,128)
(3,485)
(2,485)
253
125
($28,720)
$13,428
(22,416)
(41,461)
219
($50,230)
$16,211
2,940
19,151
(1,741)
$17,410
2012
Restated*
$89,835
(47,140)
(56,112)
(13,417)
(560)
29,037
$15,060
$82,933
35,273
17,700
(2,183)
14,408
2,802
2,003
33,173
(76,540)
(10,747)
98,822
(8,987)
$89,835
($30,174)
(30)
(11,265)
(11,883)
6,207
5
($47,140)
$5,991
(22,211)
(41,054)
413
749
($56,112)
$20,253
4,574
24,827
(9,767)
$15,060
(see accompanying notes)
*Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012
and reflect adjustments made as detailed in Note 29.
TORSTAR CORPORATION 2013 ANNUAL REPORT 58
TORSTAR - Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2013 and 2012
(Tabular amounts in thousands of Canadian dollars except per share amounts)
1. CORPORATE INFORMATION
Torstar Corporation is incorporated under the laws of Ontario, Canada and its Class B (non-voting) shares are
publicly traded on the Toronto Stock Exchange. The registered office is located at One Yonge Street, Toronto,
Canada. The principal activities of the Company and its subsidiaries are described in Note 3.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). The policies applied in these consolidated financial statements are based on
IFRS policies effective as of December 31, 2013. These consolidated financial statements have been
authorized for issue in accordance with a resolution from the Board of Directors on March 4, 2014.
Comparative figures for previous periods have been restated to conform to the current year presentation.
(b) Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for
certain financial instruments that are measured at fair value as described in the accounting policies.
(c) Principles of consolidation
The consolidated financial statements of the Company include the accounts of Torstar Corporation and all its
subsidiaries over which it has control. The Company controls an investee when the Company is exposed to,
or has rights to, variable returns from its relationship with the investee and has the ability to affect those
returns through its power over the investee. The Company considers all relevant facts and circumstances in
assessing whether or not the Company’s voting rights in an investee are sufficient to give it power. These
facts and circumstances include: the size of the Company’s holding of voting rights relative to the size and
dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote
holders or other parties; and rights arising from other contractual arrangements. The financial statements of
subsidiaries are included in the consolidated financial statements from the date control commences and are
deconsolidated on the date when control ceases.
Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders
of the Company and to the minority interests, even if this results in the minority interests having a deficit
balance.
Intra-group balances and transactions are eliminated on consolidation. Unrealized gains arising from
transactions with equity-accounted investees are eliminated against the investment to the extent of the
Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains,
but only to the extent that there is no evidence of impairment.
(d) Investments in joint ventures and associated businesses
A joint venture is a type of joint arrangement in which the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of
an arrangement, which exists only when decisions about the relevant activities require unanimous consent of
the parties sharing control.
TORSTAR CORPORATION 2013 ANNUAL REPORT 59
TORSTAR - Consolidated Financial Statements
An associate is an entity in which the Company has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but does not represent control or joint
control over those decisions.
The considerations made in determining joint control or significant influence are similar to those necessary to
determine control over subsidiaries.
Investments in joint ventures and associates are accounted for using the equity method, whereby the
investment is carried in the consolidated statement of financial position at cost plus post-acquisition changes
in the Company’s share of the net assets of the investment. Goodwill relating to the joint venture or associate
is included in the carrying amount of the investment and is neither amortized nor individually tested for
impairment. When the Company’s share of losses of a joint venture or associate exceeds the Company’s
carrying value of the investment, the Company discontinues recognizing its share of further losses. Additional
losses are recognized only to the extent that the Company has incurred legal or constructive obligations or
made payments on behalf of the joint venture or associate.
The consolidated statement of income reflects the Company’s share of the results of operations of the joint
venture or associate. Where there has been a change recognized directly in the OCI of the joint venture or
associate, the Company recognizes its share of any changes and discloses this, when applicable, in OCI.
When there has been a change recognized directly in the equity of the joint venture or associate, the
Company recognizes, when applicable, its share of any changes in the statement of changes in equity.
The financial statements of the joint venture or associate are prepared for the same reporting period as the
Company except when the joint venture or associate does not have coterminous year-end and quarter-ends
with the Company, in which case the most recent period-end available in a quarter is used. When necessary,
adjustments are made to bring the accounting policies of the joint venture or associate in line with those of the
Company.
After the initial application of the equity method, the Company determines at each reporting date whether
there is any objective evidence that the investment in the joint venture or associate is impaired and
consequently whether it is necessary to recognize an impairment loss with respect to the Company’s
investment. If this is the case, the Company calculates the amount of impairment as the difference between
the recoverable amount of the investment and its carrying value and recognizes the impairment in the
consolidated statement of income.
Upon loss of significant influence over an associate, the Company measures and recognizes any retained
investment at its fair value. Upon loss of joint control over a joint venture, the Company considers whether it
has significant influence, in which case the retained investment is accounted for as an associate using the
equity method, otherwise the Company measures and recognizes any retained investment as a portfolio
investment at its fair value. Any difference between the carrying amount of the investment and the fair value
of the retained investment or proceeds from disposal of the investment is recognized in profit or loss.
(e) Foreign currency translation
The Company’s consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional currency. Each entity consolidated by the Company determines its own functional currency based
on the primary economic environment in which the entity operates.
Transactions in foreign currencies are initially recorded by the entities in their respective functional currencies
on the date of the transaction. Monetary assets and liabilities denominated in currencies other than the
entity’s functional currency are translated at the rates as at the date of the consolidated statement of financial
position (period end rates). Foreign currency exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities not denominated in the functional
currency of an entity are recognized in the consolidated statement of income, except for qualifying cash flow
and net investment hedges for which these exchange differences are deferred in accumulated other
comprehensive income (“AOCI”) within equity. These deferred foreign exchange gains and losses are carried
forward to be recognized in income in the same period as the corresponding gains or losses associated with
the hedged item. Non-monetary assets and liabilities are translated into functional currencies at historical
exchange rates.
TORSTAR CORPORATION 2013 ANNUAL REPORT 60
TORSTAR - Consolidated Financial Statements
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the
period end rates of exchange, and items of income and expense are translated into Canadian dollars at the
rates prevailing on the dates of the transactions, or average rates of exchange where these approximate
actual rates. The resulting translation adjustments are included in OCI. Upon reduction of the Company’s
investment in a foreign subsidiary due to a sale or liquidation, the proportionate amount of AOCI is recognized
in income.
(f) Financial instruments
Financial assets and liabilities
The Company classifies its financial assets and liabilities into the following categories:
•
•
•
•
Financial instruments at fair value through profit or loss
Loans and receivables
Financial assets classified as available-for-sale (“AFS”)
Other financial liabilities
The Company has not classified any financial instruments as held-to-maturity. Appropriate classification of
financial assets and liabilities is determined at the time of initial recognition or when reclassified on the
consolidated statement of financial position.
Financial instruments are recognized on the trade date – the date on which the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and liabilities at fair value through profit or loss
The Company classifies certain financial assets and liabilities as either held for trading or designated at fair
value through profit or loss. Assets and liabilities in this category include derivative financial instruments that
are not designated as hedging instruments in hedge relationships.
Financial instruments at fair value through profit or loss are carried at fair value. Related realized and
unrealized gains and losses are included in the consolidated statement of income.
Loans and receivables
Loans and receivables include originated and purchased non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Assets in this category include current
receivables and cash and cash equivalents and are classified as current assets in the consolidated statement
of financial position. Non-current receivables are classified as other assets.
Loans and receivables are initially recognized at fair value plus transaction costs. They are subsequently
measured at amortized cost using the effective interest method less any impairment. Receivables are
reduced by book revenue provisions and estimated bad debt provisions which are determined by reference to
past experience and expectations. Cash and cash equivalents consist of cash in bank and short-term
investments with maturities on acquisition of 90 days or less.
Financial assets classified as AFS
Financial assets that are not classified as at fair value through profit or loss or as loans and receivables are
classified as AFS. A financial asset classified as AFS is initially recognized at its fair value plus transaction
costs that are directly attributable to the acquisition of the financial asset. Financial assets classified as AFS
are carried at fair value with the changes in fair value reported as unrealized gains or losses on AFS assets
within OCI, unless the asset is subject to a fair value hedge, in which case changes in fair value resulting from
the risk being hedged are recorded in the consolidated statement of income.
Financial assets classified as AFS are assessed for impairment at each reporting date and the Company
recognizes any impairment in the consolidated statement of income.
TORSTAR CORPORATION 2013 ANNUAL REPORT 61
TORSTAR - Consolidated Financial Statements
Other financial liabilities
Other financial liabilities are measured at amortized cost using the effective interest rate method. Other
financial liabilities include accounts payable and accrued liabilities and the long-term debt instruments. Long
term debt instruments are initially measured at fair value, which is the consideration received, net of
transaction costs incurred. Transaction costs related to long term debt instruments are included in the value
of the instruments and amortized using the effective interest rate method.
Derecognition
A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when
the Company has transferred its rights to receive cash flows from the asset. Any unrealized gains and losses
recorded in AOCI are transferred to the consolidated statement of income on disposal of an AFS asset.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.
Derivative instruments and hedging
In the normal course of business, the Company uses derivative financial instruments to manage its risks
related to foreign currency exchange rate fluctuations, interest rates and share-based compensation liability
and expense. Derivative transactions are governed by a uniform set of policies and procedures covering
areas such as authorization, counterparty exposure and hedging practices. Positions are monitored based on
changes in interest and foreign currency exchange rates and their impact on the market value of derivatives.
Credit risk on derivatives arises from the potential for counterparties to default on their contractual obligations
to the Company. The Company limits its credit risk by dealing with counterparties that are considered to be of
high credit quality. The Company does not enter into derivative transactions for trading or speculative
purposes.
All derivatives, including derivatives designated as hedges for accounting purposes and embedded
derivatives, are recorded in the consolidated statement of financial position at fair value. The treatment of
changes in the fair value of derivatives depends on whether or not they are designated as hedges for
accounting purposes.
Foreign exchange contracts to sell U.S. dollars have been designated as hedges against future intercompany
Book Publishing revenues. Gains and losses on these instruments are accounted for as a component of the
related hedged transaction. Gains and losses on foreign exchange contracts which do not qualify for hedge
accounting are reported in the consolidated statement of income.
Interest rate swap contracts have been designated as hedges against interest expense. Payments and
receipts under interest rate swap contracts are recognized as adjustments to interest expense on an accrual
basis. Any resulting carrying amounts are included in the consolidated statement of financial position.
The Company uses derivative instruments to manage its exposure to changes in the fair value of its deferred
share unit (“DSU”) plans and the cost of its restricted share unit (“RSU”) plan. These instruments are settled
quarterly and changes in the fair value of these instruments are recorded as compensation expense. The
change in the Company’s share price between the settlement date and the reporting date is included in the
consolidated statement of financial position at the fair value of these derivative instruments at each reporting
date.
The treatment of changes in the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. In order for a derivative to qualify for hedge accounting, the derivative must be
formally designated as a fair value, cash flow or net investment hedge by documenting the relationship
between the derivative and the hedged item. Documentation includes a description of the hedging
instrument, the hedged item, the risk being hedged, the Company’s risk management objective and strategy
for undertaking the hedge, the method for assessing the effectiveness of the hedge and the method for
measuring hedge ineffectiveness. Additionally, the hedge relationship must be expected to be highly effective
at offsetting changes in either the fair value or cash flows of the hedged item at both the inception of the
hedge and on an ongoing basis. The Company assesses the ongoing effectiveness of its hedges at each
reporting date.
TORSTAR CORPORATION 2013 ANNUAL REPORT 62
TORSTAR - Consolidated Financial Statements
Amounts in AOCI are recycled to the consolidated statement of income in the period when the hedged item
will affect profit and loss (for instance, when the forecast sale that is hedged takes place). If a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
unrealized cumulative gain or loss remains in AOCI and is recognized when the forecast transaction is
ultimately recognized in the consolidated statement of income. If a forecast transaction is no longer expected
to occur, the unrealized cumulative gain or loss that was reported in AOCI is recognized in the consolidated
statement of income.
Fair value hedges
These are hedges of the fair value of recognized assets, liabilities or a firm commitment. Changes in the fair
value of derivatives that are designated as fair value hedges are recorded in the consolidated statement of
income together with any changes in the fair value of the hedged asset or liability attributable to the hedged
risk.
Cash flow hedges
These are hedges of highly probable forecast transactions such as the floating to fixed interest rate swap
agreements and certain foreign exchange forward contracts. The effective portion of changes in the fair value
of derivatives that are designated as a cash flow hedge is recognized in OCI. The gain or loss relating to the
ineffective portion is recognized in the consolidated statement of income.
Net investment hedges
These are hedges of the Company’s net investment in its foreign operations. The effective portion of the
change in the fair value of the hedging instrument is recorded directly in OCI. The ineffective portion is
recognized in the consolidated statement of income in the period in which the change occurs. Upon the sale
or liquidation of the foreign operations, the amounts deferred in AOCI are recognized in the consolidated
statement of income.
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host
contract, with the effect that a portion of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host
contract and accounted for as a derivative in the consolidated statement of financial position, at its fair value.
Any future changes in the fair value are recorded in the consolidated statement of income.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments, while providing effective economic hedges, are not designated as hedges for
accounting purposes. Changes in the fair value of any derivatives that are not designated as hedges for
accounting purposes are recognized in the consolidated statement of income.
Determination of fair value
Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction
between knowledgeable, willing parties, other than in a forced or liquidation sale. The fair value of
instruments quoted in active markets is determined using quoted prices where they represent those at which
regularly and recently occurring transactions take place. The Company uses valuation techniques to
establish the fair value of instruments where prices quoted in active markets are not available. Where
possible, parameter inputs to the valuation techniques are based on observable data derived from prices of
relevant instruments traded in an active market. These valuation techniques involve some level of
management estimation and judgement, the degree of which will depend on the price transparency for the
instrument or market and the instrument’s complexity.
The Company categorizes fair value measurements according to a three-level hierarchy. The hierarchy
prioritizes the inputs used in the Company’s valuation techniques. A level is assigned to each fair value
measurement based on the lowest level input significant to the fair value measurement in its entirety. The
TORSTAR CORPORATION 2013 ANNUAL REPORT 63
TORSTAR - Consolidated Financial Statements
three levels of the fair value hierarchy are defined as follows:
Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active
markets.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
The fair value of derivative financial instruments reflects the estimated amount that the Company would have
been required to pay if forced to settle all unfavourable outstanding contracts or the amount that would be
received if forced to settle all favourable contracts at the reporting date. The fair value represents a point-in-
time estimate that may not be relevant in predicting the Company’s future earnings or cash flows.
The Company’s derivative financial instruments include foreign exchange forward contracts, interest rate
swaps and derivative instruments to manage its exposure associated with changes in the fair value of its DSU
plans and the cost of its RSU plan. The fair value of foreign exchange forward contracts is classified within
Level 2 as it is based on foreign currency rates quoted by banks and is the difference between the forward
exchange rate and the contract rate.
The Company determines the fair value for interest rate swaps as the net discounted future cash flows using
the implied zero-coupon forward swap yield curve. The change in the difference between the discounted
cash flow streams for the hedged item and the hedging item is deemed to be hedge ineffectiveness and is
recorded in the consolidated statement of income. The fair value for the interest rate swaps is based on
forward yield curves which are observable inputs provided by banks and available in other public data
sources, and are classified within Level 2.
The fair value of the derivative instruments used to manage the Company’s exposure under the DSU and
RSU plans is classified within Level 2 and is based on the movement in the Company’s share price between
the quarterly settlement date and the reporting date which are observable inputs.
The fair value of portfolio investments that have quoted market prices is classified within Level 2 because
even though the securities are listed, they are not actively traded. The fair value of portfolio investments that
do not have quoted market prices is determined when possible using a valuation technique that maximizes
the use of observable market inputs, and is classified within Level 3.
(g) Inventories
Inventories are valued at the lower of cost and net realizable value. The cost of finished goods and work in
progress includes raw materials, translation and printing and production costs. Raw materials are valued at
purchase cost on a first in, first out basis. Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Provisions are made for slow moving and obsolete inventory. If the carrying value exceeds the net realizable
amount, a writedown is recognized. The writedown may be reversed in a subsequent period if the
circumstances causing it no longer exist.
(h) Prepaid expenses and other current assets
Prepaid expenses and other current assets include advance royalty payments to authors which are deferred
until the related works are published and are reduced by estimated provisions for advances that may exceed
royalties earned.
TORSTAR CORPORATION 2013 ANNUAL REPORT 64
TORSTAR - Consolidated Financial Statements
(i) Property, plant and equipment
Property, plant and equipment are stated at cost or at fair value as deemed cost, net of accumulated
depreciation and any accumulated impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset. When significant parts of property, plant and equipment are
required to be replaced in intervals, the Company recognizes such parts as individual assets with specific
useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is
recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognized in the consolidated statement of income as
incurred.
Depreciation is calculated using the straight-line basis over the estimated useful life of the asset as follows:
• Buildings
- Structural
- Components
• Machinery and Equipment
- Machinery and Equipment
- Furniture and Fixtures
• Leasehold Improvements
25 – 60 years
5 – 30 years
3 – 40 years
5 – 10 years
Term of the lease plus renewal periods, when renewal is
reasonably assured
The useful lives and methods of depreciation and the assets’ residual values are reviewed at least annually,
and the depreciation charge is adjusted prospectively, if appropriate.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon
disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognition of the asset is included in the consolidated statement of income when the asset is
derecognized.
(j)
Intangible assets
Intangible assets are recognized separately from goodwill when they are separable or arise from contractual
or other legal rights and their fair value can be measured reliably. The useful lives of intangible assets are
assessed as either finite or indefinite.
Intangible assets which have a finite useful life are amortized over the useful economic life of the asset and
are stated at cost less accumulated amortization and any accumulated impairment losses. The amortization
period and the amortization method for an intangible asset with a finite useful life are reviewed at least
annually. Changes in the expected useful life or the expected pattern of consumption of future economic
benefits is accounted for by changing the amortization period or method, as appropriate, and adjusted
prospectively.
Amortization is calculated using the straight-line basis over the estimated useful life of the asset as follows:
•
•
•
Software
Customer relationships and other
Franchise agreements
3 – 10 years
4 – 10 years
10 years
Intangible assets with indefinite useful lives are not amortized. These include newspaper mastheads and
trade and domain names. The assessment of indefinite life is reviewed at each reporting date to determine
whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite
is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the
net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement
of income when the asset is derecognized.
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(k) Borrowing costs
Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing
of funds. Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part
of the cost of the asset. All other borrowing costs are expensed in the period they are incurred.
(l) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed in the
consolidated statement of income.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic circumstances
and pertinent conditions at the acquisition date. If the business combination is achieved in stages, the
acquisition date fair value of the Company’s previously held equity or jointly controlled interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be
transferred by the Company will be recognized at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in
accordance with IAS 39, Financial Instruments: Recognition and Measurement, either in the consolidated
statement of income or as a change to OCI.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the
net identifiable assets of the acquired subsidiary at the date of acquisition. If this consideration is lower than
the fair value of the net assets acquired, the difference is recognized in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
(m) Impairment of non-financial assets
Property, plant and equipment and intangible assets are tested for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Additionally, intangible assets with an
indefinite useful life are subject to an annual impairment test. For the purpose of measuring recoverable
values, assets are grouped at the lowest levels for which there are separately identifiable cash flows (a cash
generating unit or “CGU”). The recoverable value is the higher of an asset’s fair value less costs to sell and
value in use (which is the present value of the expected future cash flows of the relevant asset or CGU). An
impairment loss is recognized for the value by which the asset’s carrying value exceeds its recoverable value.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists. Goodwill
acquired through a business combination is allocated to each CGU or group of CGUs that is expected to
benefit from the related business combination. For internal management purposes, goodwill is monitored at
the operating segment level which represents a group of CGUs. Goodwill is not amortized.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when
events or circumstances warrant such consideration.
The test for impairment for either an intangible asset or goodwill is to compare the recoverable value of the
asset, CGU or group of CGUs to the carrying value. The recoverable value is determined for an individual
asset unless the asset does not generate cash inflows that are largely independent of those from other assets
or groups of assets (such as goodwill). If this is the case, the recoverable value is determined for the group of
CGU to which the asset belongs.
The Company generally uses the value in use calculation to determine the recoverable value but in certain
circumstances may use fair value less costs to sell. The value in use calculation uses cash flow projections
for a five year period and a terminal value. The terminal value is the value attributed to the cash flow beyond
the projected period using a perpetual growth rate. The key assumptions in the value in use calculations are:
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TORSTAR - Consolidated Financial Statements
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) growth rates (for periods within
the cash flow projections and in perpetuity for the calculation of the terminal value), future levels of
maintenance expenditures on capital and discount rates.
• EBITDA growth rates and future levels of capital expenditures are based on management’s best
estimates considering historical and expected operating plans, strategic plans, economic conditions and
the general outlook for the industry and markets in which the CGU or group of CGUs operates. The
projections are based on the most recent financial budgets, forecasts and three year strategic plans
approved by the Company’s Board of Directors and management forecast beyond that period.
In calculating the value in use, the Company uses a discount rate in order to establish a range of values
for each CGU or group of CGUs. The discount rate applied to each calculation is a pre-tax rate that
reflects an optimal debt-to-equity ratio and considers the risk free rate, market equity risk premium, size
premium and the risks specific to each CGU or group of CGUs cash flow projections.
•
• The perpetuity growth rate is based on management’s best estimates considering the industry, operating
income trends and growth prospects for that specific CGU or group of CGUs.
(n) Revenue recognition
Advertising revenue is recognized when publications are delivered or advertisements are placed on the
Company’s digital platforms. Newspaper circulation revenue is recognized when the publication is delivered.
Subscription revenue for newspapers is recognized as the publications are delivered over the term of the
subscription.
Revenue from the sale of books is recognized for the retail print distribution channel based on the book’s
publication date (books are shipped prior to the publication date so that they are in stores by the publication
date) and for all other distribution channels when title has transferred to the buyer. Book publishing revenue
is recorded net of provisions for estimated returns and direct-to-consumer bad debts (“book revenue
provisions”). Retail print books are sold with a right of return. The retail returns provision is estimated based
primarily on point-of-sale information, returns patterns and historical sales performance for the type of book
and the author. Direct-to-consumer books are shipped with no obligation to the customer who may return the
books or cancel their subscription at any time. The direct-to-consumer book revenue provision recognizes
that not all books shipped will be purchased by the customer. Book revenue provisions are made at the time
of shipment for the anticipated physical return of the books or a non-payment for the shipment. The direct-to-
consumer book revenue provisions are estimated based on historical payment rates for the type of book as
well as how long the customer has been a subscriber. Book publishing revenue attributable to the customer
loyalty points program is deferred at the date of the initial sale and is recognized as revenue when the
Company fulfills its obligations.
Other revenue is recognized when the related service or product has been delivered. Amounts received in
advance are included in the consolidated statement of financial position in accounts payable and accrued
liabilities until the revenue is recognized in accordance with the policies noted above.
(o) Employee benefits
The Company maintains both defined benefit and capital accumulation (defined contribution) employee
benefit plans.
Details with respect to accounting for defined benefit employee future benefit plans are as follows:
• The net asset or net liability recognized in the consolidated statement of financial position is the present
value of the defined benefit obligation at the reporting date less the fair value of the plan assets. The
service cost and obligations of pensions and post employment benefits earned by employees is
calculated annually by independent actuaries using the projected unit credit method prorated on service
and management's best estimate of assumptions of salary increases, retirement ages of employees and
expected health care costs.
• The present value of the defined benefit obligation is determined by discounting estimated future cash
flows using the current interest rate at the reporting date on high quality fixed income investments with
maturities that match the expected maturity of the obligations.
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TORSTAR - Consolidated Financial Statements
• Net interest is determined by multiplying the net defined benefit liability or asset by the discount rate used
to determine the defined benefit obligation (at the beginning of the year) and is included in Interest and
financing costs in the consolidated statement of income.
• Past service costs are recognized immediately in the consolidated statement of income.
• Current service costs, past service costs, special termination benefits, curtailment gains or losses and
administration costs are recognized in the consolidated statement of income and are included in Salaries
and benefits or Restructuring and other charges, as applicable.
• Changes in actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation and the fair value of plan assets are recognized in OCI in the period in which they arise and
charged or credited to retained earnings. On an interim basis, management estimates the changes in the
actuarial gains and losses. These estimates are adjusted when the annual valuation or estimate is
completed by the independent actuaries.
• For the funded plans, the value of any minimum funding requirements (as determined by applicable
pension legislation) is recognized to the extent that the amounts are considered recoverable.
Recoverability is limited to the extent to which the Company can reduce the future contributions to the
plan.
Company contributions to capital accumulation plans are expensed as incurred.
Termination benefits are expensed at the earlier of the time at which the Company can no longer withdraw the
offer of those benefits and the time at which the Company recognizes costs for a restructuring. Benefits
which are not expected to be settled wholly within twelve months from the end of the reporting period are
discounted.
(p) Share-based compensation plans
The Company has a share option plan, an employee share purchase plan (“ESPP”), two DSU plans and an
RSU plan.
Share option plan and ESPP
Eligible senior executives may be granted options to purchase Class B non-voting shares at an option price
which shall not be less than the closing market price of the shares on the last trading day before the grant.
Share options vest, and are expensed, over four years from the date of grant.
Under the Company’s ESPP, employees may subscribe for Class B non-voting shares of the Company to be
paid for through payroll deductions over two-year periods at a purchase price which is the lower of the market
price on the entry date or the market price at the end of the payment period. The value of the shares that an
employee may subscribe for is restricted to a maximum of 20% of salary at the beginning of the two year
period.
The fair value of share options granted and ESPP subscriptions are measured using the Black-Scholes
pricing model. For share options, the model considers each tranche with graded vesting features as a
separate share option grant. Forfeitures are estimated on the grant date and are revised as the actual
forfeitures differ from estimates.
The fair value of share options granted and ESPP subscriptions is recognized as compensation expense over
the vesting and subscription periods with a related credit to contributed surplus. The contributed surplus
balance is reduced as options are exercised and as the ESPP matures through a credit to share capital. The
consideration paid by option holders and the ESPP subscribers is credited to share capital when the options
are exercised or when the plan matures.
DSUs
Eligible executives may elect to receive certain cash incentive compensation in the form of DSUs. Each DSU
is equal in value to one Class B non-voting share of the Company and are issued on the basis of the closing
market price per share of Class B non-voting shares of the Company on the Toronto Stock Exchange on the
TORSTAR CORPORATION 2013 ANNUAL REPORT 68
TORSTAR - Consolidated Financial Statements
date of issue. DSUs also accrue dividend equivalents payable in additional units in an amount equal to
dividends paid on Class B non-voting shares of the Company.
The Company has also adopted a DSU plan for non-employee directors. Each non-employee director
receives an award of DSUs as part of his or her annual Board retainer. In addition, a non-employee director
holding less than the minimum shareholding requirement of Class B non-voting shares, Class A voting
shares, DSUs, or a combination thereof, receives the cash portion of his or her annual Board retainer in the
form of DSUs. Any non-employee director may also elect to participate in the DSU plan in respect of part or
all of his or her retainer and attendance fees. The terms of the director DSU plan are substantially the same
as the executive DSU plan.
Compensation expense is recorded in the year DSUs are granted and changes in the fair value of outstanding
DSUs, including deemed dividend equivalents, are recorded as an expense in the period that they occur.
DSUs can only be redeemed once the executive or director is no longer employed with the Company
whereupon the executive or director is entitled to receive the fair market value of the equivalent number of
Class B non-voting shares, net of withholdings, in cash. Outstanding DSUs are recorded as long-term
liabilities.
RSUs
Eligible executives may be granted RSU awards equivalent in value to Class B non-voting shares of the
Company as part of their long-term incentive compensation. RSUs vest after three years and are settled in
cash. RSUs are accrued over the three-year vesting period as compensation expense and a related liability.
Forfeitures are estimated on the grant date and revised if the actual forfeitures differ from the estimates. The
liability is recorded at fair value at each reporting date. Accrued RSUs are recorded as long-term liabilities,
except for the portion that will vest within twelve months which is recorded as a current liability.
(q) Taxes
Tax expense comprises current and deferred tax. Tax expense is recognized in the consolidated statement
of income, unless it relates to items recognized outside the consolidated statement of income. Tax expense
relating to items recognized outside of the consolidated statement of income is recognized in correlation to
the underlying transaction in either OCI or equity.
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted at the reporting date.
Deferred income tax
Deferred income tax is provided using the liability method for temporary differences between the tax bases of
assets and liabilities and their carrying amount for financial reporting purposes. Deferred income tax assets
and liabilities are measured using substantively enacted tax rates and laws at the reporting date that are
expected to be in effect when the temporary differences are expected to reverse.
Deferred income taxes are recognized for taxable temporary differences arising on investments in
subsidiaries, associates and joint ventures except where the reversal of the temporary difference can be
controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred income tax
assets and liabilities are not recognized for temporary differences that arise on initial recognition of assets and
liabilities other than in a business combination.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused
tax credits and unused tax losses to the extent that it is probable that sufficient taxable profit will be available
against which they can be utilized.
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(r) Provisions
Provisions are recognized if the Company has a present legal or constructive obligation as a result of past
events, if it is probable that an outflow of resources will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation as of the date of the consolidated statement of financial position, taking into account the risks and
uncertainties surrounding the obligation.
Provisions are discounted and measured at the present value of the expenditure expected to be required to
settle the obligation, using a pre-tax rate that reflects the current market assessments of the time value of
money and the risks specific to the obligation. The increase in the provision due to the passage of time is
recognized as interest expense.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a
third party (for example, because the obligation is covered by an insurance policy), an asset is recognized if it
is virtually certain that reimbursement will be received.
(s) Use of estimates and judgements
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent
liabilities, at the end of the reporting period.
Management uses estimates when accounting for certain items such as revenues, allowance for doubtful
accounts, useful lives of long-lived assets, asset impairments, provisions, share-based compensation plans,
employee benefit plans, deferred income taxes and goodwill impairment. Estimates are also made by
management when recording the fair value of assets acquired and liabilities assumed in a business
combination.
Estimates are based on a number of factors, including historical experience, current events and other
assumptions that management believes are reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and actual results could differ. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
The more significant estimates and assumptions made by management are described below:
Book revenue provisions
Book revenue provisions are estimated based on the following key inputs and assumptions: point-of-sale
information, returns patterns, historical sales performance for the type of book and author, historical payment
rates for the type of book and the length of time the customer has been a member of the direct-to-consumer
program. The variance between the original estimate for returns and direct-to-consumer bad debts, and the
actual experience is recorded in the period when the data becomes available.
Employee benefits
The valuation by independent actuaries uses management’s assumptions for rate of compensation increase,
trends in healthcare costs, employee turnover and expected mortality. However, the most significant
assumption is the discount rate which is used to determine the present value of the future cash flows that are
expected to be required to settle employee benefit obligations. The discount rate is based on the market yield
on long-term high-quality corporate bonds with maturities matching the estimated cash flows from the benefit
plan at the time of estimation. A lower discount rate would result in a higher employee benefit obligation.
Further details about the assumptions used are provided in Note 19.
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Impairment of non-financial assets
The Company tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if
there are indicators that impairment may have arisen. Impairment exists when the carrying value of an asset
or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in
use. The fair value less costs to sell calculation is based on available data from binding sales transactions in
arm’s length transactions of similar assets or observable market prices less incremental costs for disposing of
the asset. The value in use calculation is based on a discounted cash flow model. The key estimates and
assumptions used in the discounted cash flow model are cash flow growth rates for the projection period and
in perpetuity for the calculation of the terminal value and discount rates. More details on the key assumptions
used by the Company to assess its assets and CGUs are provided in Note 11.
Taxes
The Company is subject to income taxes in Canada and foreign jurisdictions. Significant judgement is
required in determining the world-wide provision for income taxes. In the ordinary course of business, there
are many transactions and calculations for which the ultimate tax determination is uncertain. Management
uses judgement in interpreting tax laws and determining the appropriate rates and amounts in recording
current and deferred income taxes, giving consideration to timing and probability. Actual income taxes could
significantly vary from these estimates as a result of future events, including changes in income tax law or the
outcome of reviews by tax authorities and related appeals. To the extent that the final tax outcome is different
from the amounts that were initially recorded, such differences will impact the income tax provision in the
period in which such determination is made.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused
tax credits and unused tax losses to the extent that it is probable that sufficient taxable profit will be available
against which they can be utilized. When assessing the probability of taxable profit being available,
management primarily considers prior years’ results, forecasted future results and non-recurring items. As
such, the assessment of the Company’s ability to utilize tax losses carried forward is to a large extent
judgement-based. If the future taxable results of the Company differ significantly from those expected, the
Company would be required to increase or decrease the carrying value of the deferred income tax assets with
a potentially material impact on the Company’s consolidated statement of financial position and consolidated
statement of comprehensive income. The carrying amount of deferred income tax assets is reassessed at
each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will
be available to utilize all or part of the deferred income tax assets. Unrecognized deferred income tax assets
are reassessed at each reporting period and are recognized to the extent that it is probable that there will be
sufficient taxable profits to allow all or part of the asset to be recovered.
Further details on taxes are disclosed in Note 13.
Significant judgements made by management are described below:
Classification of investments as subsidiaries, joint ventures, associated businesses and portfolio investments
Classification of investments requires judgement on whether the Company controls, has joint control or
significant influence over the strategic financial and operating decisions relating to the activity of the investee.
In assessing the level of control or influence that the Company has over an investment, management
considers ownership percentages, board representation as well as other relevant provisions in shareholder
agreements. If an investor holds 20% or more of the voting power of the investee, it is presumed that the
investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely,
if the investor holds less than 20% of the voting power of the investee, it is presumed that the investor does
not have significant influence, unless such influence can be clearly demonstrated.
The Company has classified its investments in Black Press Ltd. and Shop.ca Network Inc. as associated
businesses based on management’s judgement that the Company has significant influence, based on rights
to board representation and other provisions in the respective shareholders’ agreements.
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Determination of operating segments, reportable segments and CGUs
The Company has two reportable segments: Media and Book Publishing. “Corporate” is the provision of
corporate services and administrative support. Based on the information provided to the Company’s chief
operating decision-maker (“CODM”), the Media Segment includes the Star Media Group and Metroland Media
Group operating segments which have been aggregated to form the Media reportable segment. Each of the
Star Media Group and Metroland Media Group include CGUs which have been grouped together for purposes
of reviewing performance and impairment testing. These operating segments have been aggregated as they
exhibit similar long-term financial performance, have similar economic characteristics and they are similar in
each of the following aspects: the nature of their products and services; the nature of their production
processes; the type of customers for their products and services; and the methods used to distribute their
products and provide their services.
The Company’s CODM monitors the operating results of the operating units separately for the purpose of
assessing performance. Segment performance is evaluated based on operating profit which corresponds to
operating profit as measured in the consolidated financial statements except that it includes the
proportionately consolidated share of joint venture operations. Decisions regarding resource allocation are
made at the reportable segment level.
(t) Changes in accounting policies
Policies adopted in 2013:
On January 1, 2013, the Company applied, for the first time, certain standards and amendments which
include amendments to IAS 1 Presentation of Financial Statements, IAS 19 (Revised 2011) Employee
Benefits (“IAS 19R”), IAS 28 Investments in Associates and Joint Ventures, IFRS 10 Consolidated Financial
Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IFRS 13 Fair
Value Measurement.
The 2012 comparative consolidated financial statements have been restated to reflect the newly adopted
IFRS standards. The impact of the changes in accounting standards is disclosed in Note 29.
Several other new standards and amendments became effective in 2013. However, they do not impact the
Company’s annual consolidated financial statements.
The nature and the impact of each new standard/amendment which affect the Company are described below:
IAS 1 Presentation of Financial Statements
The International Accounting Standards Board (“IASB”) amended IAS 1 by revising how certain items are
presented in OCI. Items within OCI that may be reclassified to profit and loss have been separated from
items that will not. While this amendment has impacted presentation in the consolidated statement of
comprehensive income, it did not impact the Company’s consolidated income, comprehensive income or
consolidated financial position.
IAS 19R Employee Benefits
The amendments to IAS 19 introduced a net interest approach for defined benefit obligations by replacing the
expected return on plan assets and interest costs on the defined benefit obligation with a single net interest
component determined by multiplying the net defined benefit liability or asset by the discount rate used to
determine the defined benefit obligation. Prior to adoption of IAS 19R, the 2012 expected long-term rate of
return on plan assets was 6.5% compared with a discount rate of 4.3% used to determine the expense on the
defined benefit obligation. Under the amended standard, the discount rate was applied to the net benefit
liability.
Also, unvested past service costs are no longer deferred and recognized over future vesting periods. Instead,
all past service costs are recognized at the earlier of when the amendment occurs and when the Company
recognizes related restructuring or termination costs. Prior to the adoption of this standard, the Company’s
unvested past service costs were recognized as an expense on a straight-line basis over the average period
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TORSTAR - Consolidated Financial Statements
until the benefits become vested. Upon adoption of IAS 19R, past service costs are recognized immediately if
the benefits have vested following the introduction of, or changes to, a pension plan.
The adoption of the standard does not impact future cash funding requirements. Upon the adoption of the
standard, the Company has classified the interest component of employee future benefit expenses, previously
included in salaries and benefits expenses, in Interest and financing costs. The effect of the Company’s
application of this standard is summarized in Note 29.
IAS 28 Investments in Associates and Joint Ventures
As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in
Associates and Joint Ventures, and describes the application of the equity method to investments in joint
ventures in addition to associates. Under the amended standard, the $10.4 million gain recognized on the
remeasurement of Tuango in the first quarter of 2012 was reversed, reducing the carrying amount of the
investment included in Note 7. The reduction in the consolidated net income and comprehensive income for
the year ended December 31, 2012 was $8.2 million net of tax of $1.7 million and reversal of amortization
expense of $0.5 million.
IFRS 10 Consolidated Financial Statements
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the
investee. IFRS 10 supersedes SIC -12 Consolidations - Special Purpose Entities and replaces parts of IAS
27 Consolidated and Separate Financial Statements. The adoption of this standard did not have a significant
impact on the consolidated financial statements.
IFRS 11 Joint Arrangements
IFRS 11 replaced IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-monetary
Contributions by Venturers. This new standard eliminates the use of the proportionate consolidation method
to account for jointly controlled entities and requires jointly controlled entities that meet the definition of a joint
venture to be accounted for using the equity method of accounting. Historically, the Company proportionately
consolidated its joint ventures including its interest in Sing Tao Daily, Workopolis and Harlequin’s operations
in France and Italy. With the adoption of this standard, the revenues, expenses, assets and liabilities from
these operations are no longer proportionately consolidated in the Company’s consolidated financial
statements but have been replaced by “Investment in joint ventures” in the consolidated statement of financial
position and “Income from joint ventures” in the consolidated statement of income. The effect of the
Company’s application of this standard is summarized in Note 29.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. The standard carries forward existing disclosures and also
introduces significant additional disclosure requirements that address the nature of, and risks associated with,
an entity’s interest in other entities. IFRS 12 replaces the previous requirements included in IAS 27
Consolidated and Separate Financial Statements, IAS 31 Interests in Joint Ventures and IAS 28 Investment in
Associates. The adoption of this standard affected disclosures provided but did not have an impact on the
financial results.
IFRS 13 Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across
all IFRS standards. IFRS 13 defines fair value and establishes disclosures about fair value measurement.
The adoption of this standard affected disclosures but did not have an impact on the financial results.
The Company has not early adopted any other standard, interpretation or amendment that has been issued
but is not yet effective.
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Future changes in accounting standards:
The following changes in accounting standards will be adopted by the Company on the effective date of
January 1, 2014:
IAS 32 Financial Instruments: Presentation
In December 2011, the IASB amended IAS 32 to clarify certain requirements for offsetting financial assets
and liabilities. The amendment addresses the meaning and application of the concepts of legally enforceable
right of set-off and simultaneous realization and settlement. The amendment will affect presentation and
disclosures but will not have an impact on financial results.
IAS 36 Impairment of Assets
In May 2013, the IASB amended IAS 36 to reduce the circumstances in which the recoverable amount of
assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce
an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where
recoverable amount (based on fair value less costs of disposal) is determined using a present value
technique. This amendment may affect disclosures but is not anticipated to have a material impact on
financial results.
The following amendments to accounting standards will be effective for the Company subsequent to 2014:
IAS 19 Employee Benefits
In November 2013, the IASB amended IAS 19 to clarify the requirements that relate to how contributions from
employees or third parties that are linked to service should be attributed to periods of service. The Company
does not anticipate early adoption and plans to adopt the standard on its effective date of January 1, 2015.
The Company is in the process of reviewing the standard to determine the impact on the consolidated
financial statements.
IFRS 9 Financial Instruments
In November 2013, the IASB issued a revised version of IFRS 9 which:
•
Introduces a new chapter to IFRS 9 on hedge accounting, putting in place a new hedge accounting model
that is designed to be more closely aligned with how entities undertake risk management activities when
hedging financial and non-financial risk exposures.
• Permits an entity to apply only the requirements introduced in IFRS 9 (2010) for the presentation of gains
and losses on financial liabilities designated as at fair value through profit or loss without applying the
other requirements of IFRS 9, meaning the portion of the change in fair value related to changes in the
entity's own credit risk can be presented in OCI rather than within profit or loss.
• Removes the mandatory effective date of IFRS 9 (2013), IFRS 9 (2010) and IFRS 9 (2009), leaving the
effective date open pending the finalization of the impairment and classification and measurement
requirements. Notwithstanding the removal of an effective date, each standard remains available for
application.
The Company does not anticipate early adoption and plans to adopt the standard on its effective date, which
the IASB has tentatively decided will be no earlier than January 1, 2017. The Company is in the process of
reviewing the standard to determine the impact on the consolidated financial statements.
TORSTAR CORPORATION 2013 ANNUAL REPORT 74
TORSTAR - Consolidated Financial Statements
3. SEGMENTED INFORMATION
The Company has two reportable segments: Media and Book Publishing. “Corporate” is the provision of
corporate services and administrative support. Management of each segment is accountable for the revenues
and segment operating profit which includes the proportionately consolidated share of joint venture operations.
Segment profit or loss has been defined as segmented operating profit which corresponds to operating profit as
presented in the consolidated statement of income but includes the proportionately consolidated share of joint
venture operations. All other income and expense items are managed on a Company basis and are not provided
to the CODM at the operating segment level. Assets and liabilities are also not provided to the CODM at the
operating segment level. These items are therefore not allocated to the operating segments.
The Media Segment publishes four daily newspapers: the Toronto Star, The Hamilton Spectator, the Waterloo
Region Record, and the Guelph Mercury. The Media Segment also publishes approximately 115 community
newspapers in Ontario. In addition, the Company has a 90% interest in Free Daily News Group Inc. (“Metro
English Canada”), which publishes the English-language Metro newspapers in several Canadian cities, and
through a joint venture arrangement, the Company owns an interest in the Chinese-language Sing Tao Daily and
its related publications in Toronto, Vancouver and Calgary. Most of the Company’s newspapers have an
established digital presence, and the Company also operates a number of other digital businesses including
Workopolis, Olive Media, eyeReturn Marketing, toronto.com, Wheels.ca, save.ca, goldbook.ca and WagJag.com
(“WagJag”). The Media Segment derives its revenues from advertising, subscription, distribution and other which
includes third-party printing.
The Book Publishing Segment represents Harlequin, a leading global publisher of books for women. Harlequin
publishes books around the world in a variety of formats, including digital. Harlequin sells books through the retail
channel, in stores and online, and directly to the consumer through its direct mail business and from its internet
sites. Harlequin derives its revenue from the publishing and distribution of books in both printed and digital
formats.
The Company also has investments in Black Press Ltd. (“Black Press”); Blue Ant Media Inc. (“Blue Ant”);
Canadian Press Enterprises Inc. (“Canadian Press”); Shop.ca Network Inc. (“Shop.ca”) and Tuango Inc.
(“Tuango”), which the Company presents as associated businesses.
Year ended December 31, 2013
Media
Publishing Corporate
Book
Total
Segments
Adjustments
and
Eliminations¹
Per
Consolidated
Statement of
Income
Operating Revenue
$984,047
$397,719
$1,381,766
($72,975)
$1,308,791
(398,298)
(454,972)
(34,924)
(33,829)
(86,094)
(96,570)
(244,834)
(4,288)
(4,095)
($10,743)
(2,860)
(40)
(505,611)
(702,666)
(39,252)
(37,924)
(86,094)
25,314
36,072
2,986
705
9,000
($24,070)
$47,932
($13,643)
$10,219
$1,102
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
Reportable segment operating
profit (loss)
Interest and financing costs
Foreign exchange
Adjustment to contingent
consideration
Loss from joint ventures
Income of associated businesses
Loss on sale of assets
Investment write-down and loss
Loss before taxes
(480,297)
(666,594)
(36,266)
(37,219)
(77,094)
$11,321
(17,460)
(1,506)
979
(2,578)
2,345
(152)
(562)
($7,613)
TORSTAR CORPORATION 2013 ANNUAL REPORT 75
TORSTAR - Consolidated Financial Statements
Year ended December 31, 2012
Media
Operating Revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
Reportable segment operating
profit (loss)
Interest and financing costs
Foreign exchange
Adjustment to contingent
consideration
Income from joint ventures
Loss of associated businesses
Gain on sale of assets
Investment write-down and loss
Income before taxes
Book
Publishing
$426,483
(95,674)
(253,550)
(4,107)
(1,280)
Corporate
($10,528)
(3,210)
(48)
Total
Segments
$1,485,744
(526,643)
(757,177)
(38,182)
(17,778)
(13,003)
Adjustments
and
Eliminations¹
($78,976)
27,158
35,636
2,909
389
11,000
Per
Consolidated
Statement of
Income
$1,406,768
(499,485)
(721,541)
(35,273)
(17,389)
(2,003)
$1,059,261
(420,441)
(500,417)
(34,027)
(16,498)
(13,003)
$74,875
$71,872
($13,786)
$132,961
($1,884)
$131,077
(19,906)
(248)
(258)
2,183
(2,802)
6,080
(93)
$116,033
¹ Adjustments and eliminations represent the elimination of the proportionately consolidated results of, and transactions with
joint ventures.
Geographical information
The Company operates in the following main geographical areas:
Canada
United States
Other³
Total
Revenue¹
Year ended December 31
2013
2012
$955,301
$1,002,908
190,787
219,809
162,703
184,051
$1,308,791
$1,406,768
Non-current assets²
As at December 31
2013
$640,826
78,189
39,574
$758,589
2012
$732,288
76,734
37,028
$846,050
¹ Revenue is allocated based on the country in which the order is received.
² Non-current assets include property, plant and equipment; intangible assets and goodwill.
³ Principally – Japan, Germany, United Kingdom, Australia, Sweden and France.
4.
INVESTMENTS IN SUBSIDIARIES
The Company’s material subsidiaries are: Toronto Star Newspapers Limited, Metroland Media Group Ltd. and
Harlequin Enterprises Limited. The Company has a 100% voting and equity securities interest in each of these
Ontario corporations.
The Company has a 90% interest in Metro English Canada. The Company entered into put and call
arrangements, with regards to the remaining 10% owned by Metro International S.A., which are both exerciseable
at the same fixed price starting in October 2014. The Company recorded the discounted value of the call option
liability as indicated in Note 15. As a result of the issuance of the put and call options, the Company effectively
has a 100% interest and therefore has not reflected amounts related to Minority interests.
The Company also has a 75% interest in the Olive Media partnership. The 25% interest that the Company does
not own is reflected in Minority interests.
The principal activities of these subsidiaries are described in Note 3.
TORSTAR CORPORATION 2013 ANNUAL REPORT 76
TORSTAR - Consolidated Financial Statements
5.
INVENTORIES
Finished goods
Work in progress
Raw materials
December 31,
2013
$11,892
8,676
8,800
$29,368
December 31,
2012
$11,824
9,270
10,543
$31,637
During the year ended December 31, 2013, the Company expensed $157.0 million of inventory costs (2012 –
$181.0 million) and recorded an inventory write-down of $2.4 million (2012 – $3.5 million).
6.
INVESTMENTS IN JOINT VENTURES
The Company has investments in joint ventures in each of the Media and Book Publishing Segments. The
significant joint ventures in the Media Segment include Workopolis (50%) and Sing Tao Daily (approximately
50%). In the Book Publishing Segment, Harlequin also conducts some of its business overseas with joint venture
partners, the most significant of which are in France (50%) and Italy (50%).
The table below provides a continuity of Investments in joint ventures:
Balance, beginning of period
Income (loss) from joint ventures
Distribution from joint ventures
Foreign currency translation adjustment
Loss on sale of joint venture (note 24)
Reclassification of investment in Tuango (note 7)
Adjustment on sale of investment in Tuango (note 24)
Investment and other
Balance, end of period
(a) Transition to IFRS 11
Year ended December 31
2013
$91,258
(2,578)
(7,934)
294
(226)
87
$80,901
2012
$107,512
2,183
(14,408)
(183)
(3,343)
(534)
31
$91,258
Prior to January 1, 2013, the Company’s investments in joint ventures were proportionately consolidated in the
consolidated financial statements. Effective January 1, 2013, upon adoption of IFRS 11, the Company’s joint
ventures were required to be accounted for using the equity method on a retroactive basis. The effect of the
Company’s application of this standard is summarized in Note 29.
b) Summarized Supplemental Financial Information
The following is summarized supplemental financial information based on the Company’s proportionate share of
the joint ventures:
TORSTAR CORPORATION 2013 ANNUAL REPORT 77
TORSTAR - Consolidated Financial Statements
(i) Statement of Financial Position
As at December 31, 2013
Book
Publishing
Segment
Total
Segments
Media
Segment
Cash and cash equivalents
Other current assets
Total current assets
Property, plant & equipment
Goodwill on joint ventures
Intangible assets
Other non-current assets
$6,825
12,811
19,636
6,351
38,419
19,478
$4,606
4,475
9,081
149
4,739
277
74
Total assets
$83,884
$14,320
Bank overdraft
Other current liabilities
Total current liabilities
Other non-current liabilities
Total equity
Total liabilities and equity
$10,432
10,432
519
72,933
$83,884
$4
5,851
5,855
497
7,968
$11,431
17,286
28,717
6,500
43,158
19,755
74
$98,204
$4
16,283
16,287
1,016
80,901
$14,320
$98,204
(ii) Statement of Income and Comprehensive Income
Year ended December 31, 2013
Book
Publishing
Segment
Total
Segments
Media
Segment
As at December 31, 2012
Book
Publishing
Segment
Total
Segments
Media
Segment
$8,295
9,441
17,736
5,073
47,419
20,400
3,500
$5,899
5,102
11,001
159
4,739
255
118
$14,194
14,543
28,737
5,232
52,158
20,655
3,618
$94,128
$16,272
$110,400
$11,036
11,036
722
82,370
$94,128
$195
6,704
6,899
485
8,888
$195
17,740
17,935
1,207
91,258
$16,272
$110,400
Year ended
December 31, 2012
Book
Publishing
Segment
Total
Segments
Media
Segment
Operating revenue
$48,510
$27,589
$76,099
$53,604
$28,463
$82,067
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of investment
Operating profit (loss)
Interest and financing costs
Foreign exchange
Adjustment to contingent
consideration
Gain on sale of assets
Income and other taxes
Net income
Realized foreign translation
adjustment
Unrealized foreign translation
adjustment
(20,056)
(19,069)
(2,737)
(659)
(9,000)
(3,011)
2
(6)
(75)
272
(2,818)
(914)
(3,732)
(5,258)
(20,127)
(250)
(46)
1,908
32
1,940
(786)
1,154
54
240
(25,314)
(39,196)
(2,987)
(705)
(9,000)
(1,103)
34
(6)
(75)
272
(878)
(1,700)
(2,578)
54
240
(21,873)
(18,751)
(2,733)
(389)
(11,000)
(1,142)
6
2
3,731
2,597
(2,453)
144
(5,285)
(19,976)
(176)
3,026
60
3,086
(1,047)
2,039
(27,158)
(38,727)
(2,909)
(389)
(11,000)
1,884
66
2
3,731
5,683
(3,500)
2,183
(183)
(183)
Comprehensive income
($3,732)
$1,448
($2,284)
$144
$1,856
$2,000
7.
INVESTMENTS IN ASSOCIATED BUSINESSES
As of December 31, 2013, the Company’s Investments in associated businesses include a 19.4% equity interest
in Black Press; a 23.3% equity investment in Blue Ant; a 33.3% equity interest in Canadian Press; a 19.1% equity
investment in Shop.ca and a 38.2% equity investment in Tuango.
TORSTAR CORPORATION 2013 ANNUAL REPORT 78
TORSTAR - Consolidated Financial Statements
The table below provides a continuity of Investments in associated businesses:
Balance, beginning of year
Investments made during the year
Investment in Shop.ca in exchange for Media inventory provided
Investment in Tuango (note 24)
Dividends received
Income (loss) of associated businesses
OCI – Actuarial gain (loss) on employee benefits
OCI – Foreign currency translation adjustment
Balance, end of year
Black Press
Year ended December 31
2013
2012
$32,921
3,402
965
(954)
2,345
1,512
24
$16,935
11,598
3,847
3,343
(2,802)
$40,215
$32,921
Black Press is a privately held company that publishes more than 150 titles in print and online in Canada and the
U.S. and has operations in British Columbia, Alberta, Washington State, California, Hawaii and Ohio.
For the year ended December 31, 2013, the Company’s share of Black Press’ net income was $5.5 million and
OCI was $1.5 million. For the year ended December 31, 2012, the Company did not record its share of Black
Press’ results (income of $3.9 million and other comprehensive loss of $4.4 million) as the Company’s carrying
value in Black Press was previously reduced to nil. At the beginning of 2013, the unrecognized losses were $0.7
million which were fully offset by the Company’s share of comprehensive income.
Blue Ant
Blue Ant is an independent media company which owns and operates specialty channels Travel+Escape, Bite TV
Cottage Life and AUX TV, and four premium high definition channels Oasis HD, HIFI, Smithsonian, radX and their
companion websites as well as a digital publishing division. Blue Ant also owns the Cottage Life Media group
(publisher of Cottage Life, Cottage, and Outdoor Canada, and producer of the Cottage Life consumer shows).
During 2013, the Company invested an additional $2.5 million in Blue Ant. The Company’s equity interest at
December 31, 2013 was 23.3% (December 31, 2012 – 23.7%).
The Company’s share of Blue Ant’s net loss in 2013 was $0.2 million (2012 – $2.2 million, including expenses for
CRTC benefit obligations and reorganization charges related to the acquisition of High Fidelity HDTV).
Canadian Press
Canadian Press operates The Canadian Press news agency. During 2013, the Company invested $0.5 million in
Canadian Press and had committed to invest an additional $0.4 million in early 2014.
The Company’s carrying value in Canadian Press was previously reduced to nil. In 2013, the Company recorded
a loss of $0.4 million for its additional investment commitment (2012 – $0.8 million). The Company will begin to
report its share of Canadian Press’s results once the unrecognized losses (nil as of December 31, 2013 and $6.4
million as of December 31, 2012) have been offset by net income, other comprehensive income or additional
investments are made. For the year ended December 31, 2013, the Company would have reported income of
$0.5 million and other comprehensive income of $5.9 million from Canadian Press (2012 – additional loss of $0.3
million (including income of $0.7 million, net of $1.0 million goodwill impairment loss) and other comprehensive
loss of $3.0 million).
Shop.ca
Shop.ca is an online e-commerce marketplace aimed at Canadian shoppers. On June 15, 2012, the Company
made an initial investment of $5.0 million in exchange for a 14.4% equity interest, and an additional $4.8 million of
media inventory which was provided through the end of the first quarter of 2013, bringing the Company’s interest
to 21.6%. As at December 31, 2013, the Company’s equity interest in Shop.ca was 19.1%.
TORSTAR CORPORATION 2013 ANNUAL REPORT 79
TORSTAR - Consolidated Financial Statements
For the year ended December 31, 2013, the Company’s share of Shop.ca’s net loss was $3.1 million (2012 – $0.7
million).
Tuango
Tuango is a Quebec-based daily deal business. Prior to February 29, 2012, the Company held a 50% interest, at
which time a portion was sold reducing the Company’s remaining interest to 38.2% as detailed in Note 24. For
the year ended December 31, 2013, the Company’s share of Tuango’s net income was $0.7 million ($0.9 million
for the period from February 29, 2012 to December 31, 2012).
Other
During 2013, the Company made investments in other associated businesses totaling $0.5 million for which a loss
of $0.2 million was recorded in the year.
8. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at January 1, 2012
Acquisitions – business combinations
Additions
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2012
Additions
Disposals
Foreign exchange
Balance at December 31, 2013
Depreciation and impairment
Balance at January 1, 2012
Additions
Impairments
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2012
Additions
Impairments
Disposals
Foreign exchange
Balance at December 31, 2013
Net book value
At January 1, 2012
At December 31, 2012
At December 31, 2013
Building and
leasehold
improvements
Machinery
and
equipment
Land
$5,401
$136,870
3,520
(722)
26
(287)
139,407
3,123
(998)
732
$142,264
$51,074
7,442
(691)
3
(206)
57,622
7,094
159
(928)
581
$64,528
$85,796
$81,785
$77,736
(57)
5,344
175
$5,519
$5,401
$5,344
$5,519
$198,510
18
11,144
(8,181)
157
(479)
201,169
6,768
(8,201)
1,568
$201,304
$119,253
14,839
578
(7,958)
33
(319)
126,426
14,381
169
(8,167)
1,085
$133,894
$79,257
$74,743
$67,410
Total
$340,781
18
14,664
(8,903)
183
(823)
345,920
9,891
(9,199)
2,475
$349,087
$170,327
22,281
578
(8,649)
36
(525)
184,048
21,475
328
(9,095)
1,666
$198,422
$170,454
$161,872
$150,665
TORSTAR CORPORATION 2013 ANNUAL REPORT 80
TORSTAR - Consolidated Financial Statements
9.
INTANGIBLE ASSETS
Cost
Balance at January 1, 2012
Acquisitions – business combinations
Additions – internally developed
Additions – purchased
Disposals
Foreign exchange
Balance at December 31, 2012
Acquisitions – business combinations
Additions – internally developed
Additions – purchased
Disposals
Foreign exchange
Balance at December 31, 2013
Amortization and impairment
Balance at January 1, 2012
Amortization
Impairments
Disposals
Foreign exchange
Balance at December 31, 2012
Amortization
Impairments
Disposals
Foreign exchange
Balance at December 31, 2013
Net book value
At January 1, 2012
At December 31, 2012
At December 31, 2013
Indefinite
life
Software
Finite life
Other
Total
Total
$27,236
151
(950)
(32)
26,405
654
$27,059
$1,633
1,633
9,276
$71,099
50
3,854
11,656
(5,313)
(151)
81,195
4,374
8,863
(5,719)
296
$89,009
$43,338
7,872
1,425
(5,017)
(109)
47,509
10,099
156
(5,651)
165
$40,032
1,628
(2,512)
(6)
39,142
46
(310)
80
$38,958
$7,531
5,120
(2,523)
(3)
10,125
4,692
3,334
(310)
56
$111,131
1,678
3,854
11,656
(7,825)
(157)
120,337
46
4,374
8,863
(6,029)
376
$127,967
$50,869
12,992
1,425
(7,540)
(112)
57,634
14,791
3,490
(5,961)
221
$138,367
1,829
3,854
11,656
(8,775)
(189)
146,742
46
4,374
8,863
(6,029)
1,030
$155,026
$52,502
12,992
1,425
(7,540)
(112)
59,267
14,791
12,766
(5,961)
221
$10,909
$52,278
$17,897
$70,175
$81,084
$25,603
$24,772
$16,150
$27,761
$33,686
$36,731
$32,501
$29,017
$21,061
$60,262
$62,703
$57,792
$85,865
$87,475
$73,942
10. GOODWILL
Balance, beginning of year
Impairments (note 11)
Acquisitions (note 23)
Dispositions (note 24)
Foreign exchange and other
Balance, end of year
2013
$596,703
(64,000)
1,279
$533,982
2012
$598,603
1,074
(2,847)
(127)
$596,703
Goodwill acquired in a business combination is allocated to a CGU or groups of CGUs which are expected to
benefit from the synergies of the combination. For internal management purposes, certain CGUs have been
grouped together as goodwill is monitored at the operating segment level.
TORSTAR CORPORATION 2013 ANNUAL REPORT 81
TORSTAR - Consolidated Financial Statements
Goodwill has been allocated to the following groups of CGUs:
Harlequin
Metroland Media Group
Star Media Group
Total
11. IMPAIRMENT OF ASSETS
December 31,
2013
$107,565
258,175
168,242
$533,982
December 31,
2012
$106,286
258,175
232,242
$596,703
The Company incurred impairment losses as indicated in the chart below:
Property, plant and equipment (note 8)
Intangible assets (note 9)
Goodwill (note 10)
Investments in joint ventures (note 6)
Impairment Testing
2013
$328
12,766
64,000
77,094
9,000
$86,094
2012
$578
1,425
2,003
11,000
$13,003
As a result of the internal reorganization, realignment and integration of certain digital businesses within the
Media Segment during 2013, the Company recorded impairments of $2.8 million consisting of $0.2 million for
leaseholds, $1.3 million for indefinite-life intangible assets and $1.3 million with respect to finite-life intangible
assets in the Metroland Media Group of CGUs. Impairment charges of $0.6 million were also recorded during
2013 associated with restructuring activities in the Media Segment consisting of $0.2 million for machinery and
equipment, and $0.4 million for finite-life intangible assets.
During the third quarter of 2013, the Company conducted an impairment test on the carrying value of intangible
assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. In carrying out this
testing, it was determined that the carrying amount of certain intangible assets within the Metroland Media Group
of CGUs and the carrying value of the Star Media Group of CGUs exceeded the value in use. Accordingly, the
Company recorded impairments of $9.7 million comprising $7.9 million for indefinite-life intangible assets and $1.8
million for finite-life intangible assets in the Metroland Media Group of CGUs, and $64.0 million for goodwill in the
Star Media Group of CGUs. These impairments were the result of lower forecasted revenues reflecting shifts in
spending by advertisers. In its assessment of the recoverable amounts of the Star Media Group of CGUs, the
Company performed a sensitivity analysis of the discount rates. A 0.5% increase in the discount rate and a 0.5%
decrease in the perpetual growth rate would have an impact of approximately $6.2 million and $2.3 million
respectively.
As a result of the impairment test and factors noted above, the Company also recorded an impairment of $9.0
million in respect of its joint venture investment in Sing Tao Daily.
The Company performed its annual impairment test in the fourth quarter of 2013. No further impairments were
identified as a result of this test.
2012
In 2012, as a result of restructuring initiatives which included the shut-down and consolidation of some facilities,
the Company incurred impairments of $0.4 million for equipment in the Metroland Media Group of CGUs; $0.2
million for equipment and $1.4 million with respect to finite-life intangible assets in the Star Media Group of CGUs.
TORSTAR CORPORATION 2013 ANNUAL REPORT 82
TORSTAR - Consolidated Financial Statements
During 2012, it was determined that the carrying amount of the joint venture investment in Workopolis exceeded
the value in use as a result of increased competition in the online recruitment and job search markets, and
prevailing economic conditions. Accordingly, the Company recorded an impairment of $11.0 million in the value
of its investment in Workopolis.
These impairments had no effect on the Company’s operations or cash flows. There were no other impairments
or reversals of impairments recorded as a result of the testing.
The after-tax discount and perpetual growth rates used by the Company for the purpose of impairment testing for
each of the groups of CGUs in the following periods were:
Harlequin
Metroland Media Group
Star Media Group
Fiscal 2013
Fiscal 2012
Discount
11.6% – 12.2%
12.1% – 12.7%
12.5% – 14.5%
Growth
1.0%
0.0%
0.0% – 1.5%
Discount
9.7%
9.5%
8.8% – 15.6%
Growth
1.0%
0.0%
0.0% – 3.0%
These after-tax rates correspond to pre-tax rates in an estimated range of 16% – 18% for 2013; 11% – 21% for
2012. The increase in the rates was the result of changes in factors in the cost of equity calculation, as
determined using the capital asset pricing model. This included a 1.4% increase in the risk-free rate, adjustments
to the market equity risk premium, adjustments to the size premium and adjustments to the specific risk premiums
for certain CGUs.
In its assessment of the recoverable amounts of the groups of CGUs, the Company performed a sensitivity
analysis of the discount and perpetual growth rates. The results of the sensitivity analysis show that a reasonable
change to key assumptions would not result in an impairment loss to other groups of CGUs for which no
impairment loss was required.
12. OTHER ASSETS
Portfolio investments
ESPP receivable
Long term receivables
Other
December 31,
2013
$6,568
350
3,020
1,527
$11,465
December 31,
2012
$6,899
332
1,092
$8,323
TORSTAR CORPORATION 2013 ANNUAL REPORT 83
TORSTAR - Consolidated Financial Statements
13. INCOME TAXES
Income tax expense is made up of the following:
Current income tax expense (recovery):
Current year
Adjustment for prior years
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Recognition of previously unrecognized tax losses
Change in future tax rates
Adjustment for prior years
Income tax expense in the consolidated statement of income
Current income tax expense in OCI
Deferred income tax expense (recovery) in OCI
Income tax expense (recovery) in OCI
Total income taxes
Year ended December 31
2013
2012
$14,000
(3,600)
10,400
7,500
1,900
9,400
$19,800
47,700
47,700
$67,500
$15,400
15,400
19,100
(800)
(200)
(400)
17,700
$33,100
250
(8,600)
(8,350)
$24,750
Income taxes of $13.7 million were paid and refunds of $8.5 million were received during the year (2012 – $34.7
million paid and refunds of $3.4 million received).
Reconciliation of effective tax rate
The combined Canadian federal and provincial statutory rate was 26.5% in 2013 (2012 – 26.5%). The combined
rate had previously been expected to reduce to 26.25% in 2012 and further to 25% by 2014. In June 2012, the
Ontario government passed legislation to indefinitely postpone the provincial component of these planned tax rate
reductions.
Income (loss) before taxes
Year ended December 31
2012
2013
($7,613)
$116,033
Provision for income taxes based on Canadian statutory rate of
26.5% (2012 – 26.5%)
($2,000)
$30,800
Increase (decrease) in taxes resulting from:
Loss of associated businesses not recognized
Impairment not deductible
Prior years’ losses not previously recognized
Effect of higher foreign tax rates
Losses not recognized
Non-taxable portion of capital gains
Non-deductible expenses
Change in future tax rates
Other
Income tax expense in the consolidated statement of income
Effective income tax rate
800
18,300
2,300
600
100
(300)
$19,800
(260.1%)
1,200
(800)
2,300
200
(600)
800
(200)
(600)
$33,100
28.5%
TORSTAR CORPORATION 2013 ANNUAL REPORT 84
TORSTAR - Consolidated Financial Statements
In 2013, the Company recognized losses on impairment of assets of $77.1 million (2012 – $2.0 million), a
substantial portion of which is not deductible for tax purposes. Excluding these impairment losses, the
Company’s effective tax rate in 2013 would have been 31.4% (2012 – 29.9%).
Deferred income tax assets and liabilities
Net deferred income tax assets
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s deferred income tax assets and liabilities as at December 31, 2013 and December
31, 2012 are as follows:
Book revenue provisions
Property, plant & equipment
Intangible assets
Financial instruments
Provision for employee benefit obligations
Share-based payment transactions
Tax loss carry forwards
Other
Net deferred income tax assets
As reported in the consolidated
statement of financial position
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
Book revenue provisions
Property, plant & equipment
Intangible assets
Financial instruments
Provision for employee benefit obligations
Share-based payment transactions
Tax loss carry forwards
Other
Net deferred income tax assets
As reported in the consolidated
statement of financial position
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
December 31,
2012
$10,293
(8,280)
(12,186)
1,470
67,068
1,583
30,081
(7,657)
$82,372
Recognized in
OCI
Recognized in
net income
($507)
284
1,529
(8,554)
(314)
(1,316)
(522)
($9,400)
($100)
(47,600)
($47,700)
Foreign
exchange &
other
$380
22
(139)
245
1,704
(546)
$1,666
December 31,
2013
$10,166
(7,974)
(10,796)
1,370
11,159
1,269
30,469
(8,725)
$26,938
$89,965
(7,593)
$82,372
$51,369
(24,431)
$26,938
January 1,
2012
$10,918
(8,654)
(11,060)
2,070
68,277
1,607
32,214
(2,545)
$92,827
Recognized in
net income
$7
382
(1,176)
(10,239)
(24)
(1,535)
(5,115)
($17,700)
Recognized in
OCI
($600)
9,200
$8,600
Foreign
exchange &
other
($632)
(8)
50
(170)
(598)
3
($1,355)
December 31,
2012
$10,293
(8,280)
(12,186)
1,470
67,068
1,583
30,081
(7,657)
$82,372
$100,246
(7,419)
$92,827
$89,965
(7,593)
$82,372
TORSTAR CORPORATION 2013 ANNUAL REPORT 85
TORSTAR - Consolidated Financial Statements
Tax loss carryforwards
The Company has tax loss carryforward balances and has recognized a deferred income tax asset in respect of
these losses to the extent that it is probable that they will be utilized before they expire.
The Company has capital loss carryforwards in Canada of $51.4 million (2012 – $44.2 million) that can be carried
forward indefinitely and applied to only offset capital gains. No deferred tax asset has been recognized in respect
of the capital loss as there is no current intent to dispose of capital properties.
The U.S. subsidiaries have combined net operating loss carryforwards of U.S. $122.8 million (2012 – U.S. $129.0
million). These tax losses arose in prior years from the operation and disposition of businesses that are no longer
carried on by the Company. The current U.S. business has no relation to the former business operations, and
has a history of profits. A deferred income tax asset has been recognized for a portion of the U.S. tax loss
carryforward based upon expectations of future operating profits for the current operations, as determined by
reference to historic operating results and forecasts.
The tax loss carryforward balance, the portion of the loss recognized in deferred income tax assets, and year of
expiry are summarized as follows:
Tax loss carryforward
Local
currency
Canadian
dollars
Portion recognized
in deferred income
tax assets
As at December 31, 2013:
Canada – net operating losses
Canada – capital losses
U.S. – net operating losses
Other foreign losses
As at December 31, 2012:
Canada – net operating losses
Canada – capital losses
U.S. – net operating losses
Other foreign losses
$25,100
$51,400
U.S. $122,800
$20,900
$44,200
U.S. $129,000
$25,100
$51,400
$130,600
$3,200
$20,900
$44,200
$128,400
$2,500
$25,100
$70,600
$20,900
$72,600
Expiry
2028 to 2033
No expiry
2019 to 2032
Various
2028 to 2032
No expiry
2019 to 2031
Various
Investments in subsidiaries, associates and joint ventures
As at December 31, 2013, the excess of the tax basis over the carrying value of investments in subsidiaries,
associates and joint ventures for which a deferred income tax asset has not been recognized, is $87.7 million
(December 31, 2012 – $171.9 million).
14. LONG-TERM DEBT
Bankers’ acceptances:
Cdn. dollar denominated
U.S. dollar denominated
(a) Bank debt
December 31,
2013
December 31,
2012
$68,683
107,215
$175,898
$87,009
91,018
$178,027
i. The Company’s long-term credit facilities consist of a $150.0 million revolving facility maturing January
2017 (“Tranche A”) and a $200.0 million revolving facility maturing in January 2015 (“Tranche B”). Either
or both tranches can be extended with the consent of all parties for additional 364-day periods.
TORSTAR CORPORATION 2013 ANNUAL REPORT 86
TORSTAR - Consolidated Financial Statements
ii. The credit facilities may be drawn in Canadian or U.S. dollars and are subject to financial tests and other
covenants with which the Company was in compliance at December 31, 2013. Amounts borrowed under
the bank credit facilities are primarily in the form of bankers’ acceptance (or an equivalent) at varying
interest rates and normally mature over periods of 30 to 180 days. Effective January 2012, the interest
rate spread above the bankers’ acceptance rate if in Canadian dollars, or the LIBOR rate if in U.S. dollars,
varies based on the Company’s net debt to operating cash flow ratio (range of 1.4% to 2.5%) for
borrowings under either tranche. The interest rate spread at December 31, 2013 was 1.5% (December
31, 2012 – 1.4%).
iii.
In May 2008, the Company entered into two interest rate swap agreements that fix the interest rate on
U.S. $80 million of borrowings at approximately 4.2% (plus the interest rate spread referred to in 14(a)(ii)
for seven years ending May 2015. These swaps have been designated as cash flow hedges. The fair
value of the U.S. interest rate swap arrangements at December 31, 2013 was $4.1 million unfavourable
(December 31, 2012 – $7.0 million unfavourable).
iv. Bank debt outstanding at December 31, 2013 included U.S. dollar borrowings of U.S. $101.0 million
(December 31, 2012 – U.S. $91.8 million) at an average rate of 1.7% (December 31, 2012 – 1.6%).
Including the effect of the interest rate swap noted in 14(a)(iii), the effective rate was 4.9% at December
31, 2013 (December 31, 2012 – 5.2%).
v. The average rate on Canadian dollar bank borrowings outstanding at December 31, 2012 was 2.7%
(December 31, 2012 – 2.6%).
(b) Loans under the long term credit facilities may only be made provided there has been no development
materially adversely affecting the business or financial condition or position of the Company and its
subsidiaries considered on a consolidated basis. There were no such developments as at December 31,
2013.
(c) Interest and financing costs:
Interest on long-term debt
Interest accretion costs
Interest other
Net financing expense relating to employee benefit plans
Year ended December 31
2013
$7,810
494
(32)
9,188
$17,460
2012
$7,827
1,018
(20)
11,081
$19,906
(d) Interest paid during the year ended December 31, 2013 was $7.8 million (2012 – $7.7 million).
TORSTAR CORPORATION 2013 ANNUAL REPORT 87
TORSTAR - Consolidated Financial Statements
15. FINANCIAL INSTRUMENTS
Fair value of financial instruments
The carrying values of the Company’s financial instruments approximate their fair values unless otherwise noted.
Financial assets:
Loans and receivables, measured at amortized cost:
Cash and cash equivalents
Trade accounts receivable
Other receivables
Receivables
Long term receivables
Available-for-sale, measured at fair value:
Portfolio investments
Derivatives designated as effective hedges, measured at fair value:
Foreign currency forward contracts
Interest rate swaps – cash flow hedges
Other financial liabilities, measured at amortized cost:
Bank overdraft
Long term debt
Accounts payable and accrued liabilities
Deferred payments on acquisitions
Call option liability
Provisions (current)
Provisions (non-current)
December 31,
2013
December 31,
2012
$19,151
254,223
7,262
261,485
3,020¹
6,568¹
(911)
(4,125)
(1,741)
(175,898)
(191,706)²
(99)³
(11,083)³
(20,807)
(16,251)
$24,827
257,490
6,116
263,606
6,899¹
1,272
(7,018)
(9,767)
(178,027)
(195,822)
(99)¹
(10,951)¹
(15,649)
(14,520)
¹ These amounts are included in Other assets or Other liabilities in the consolidated statement of financial position.
² This amount excludes the ($11,083) call option liability and the ($99) deferred payment on acquisitions.
3 This amount is included in Accounts payable and accrued liabilities in the consolidated statement of financial position.
The fair value of financial assets and liabilities by level of hierarchy was as follows:
Measured at fair value:
Portfolio investments
Derivative financial instruments:
Foreign currency forward contracts
Interest rate swaps – cash flow hedges
Disclosed at fair value:
Long term debt
Deferred payments on acquisitions
Call option liability
At December 31, 2013
At December 31, 2012
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$6,568
$6,899
($911)
(4,125)
(175,898)
(99)
(11,083)
$1,272
(7,018)
(178,027)
(99)
(10,951)
TORSTAR CORPORATION 2013 ANNUAL REPORT 88
TORSTAR - Consolidated Financial Statements
Changes in the fair value of Level 3 financial instruments were as follows:
Balance, beginning of year
Additions
Disposals
Net gains (losses) included in net income
Exchange differences and OCI
Balance, end of year
Risk management
Year ended December 31
2013
$6,899
357
(200)
(562)
74
$6,568
2012
$774
6,095
(93)
123
$6,899
The Company is exposed to various risks related to its financial assets and liabilities, which include liquidity risk,
credit risk and market risk. These risk exposures are managed on an ongoing basis.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or at a
reasonable cost. The Company manages liquidity risk primarily by maintaining sufficient unused capacity within its
long term credit facilities. At December 31, 2013, the unused capacity net of letters of credit was approximately
$145.0 million (December 31, 2012 – $138.1 million).
The maturity profile of the Company’s financial liabilities, based on contractual undiscounted payments, is as
follows:
2014
2015
2016
2017
2018
2019+
Total
Foreign currency hedges¹
Outflows
Inflows
Euro forward contracts1
Outflows
Inflows
U.S. $ Interest rate swaps1
Bank overdraft
Accounts payable and
accrued liabilities1,2
Call option liability
Provisions1
Long term debt1
$42,544
(41,945)
599
$21,272
(21,452)
(180)
11,724
(11,767)
(43)
3,536
1,741
191,805
11,184
20,858
1,248
9,033
26,353
$2,308
$890
150,000
$908
$4,173
$63,816
(63,397)
419
11,724
(11,767)
(43)
4,784
1,741
191,805
11,184
38,170
176,353
Total
$229,680 $36,454
$2,308
$150,890
$908
$4,173
$424,413
1 All foreign currency denominated amounts have been translated at the December 31, 2013 spot rates.
2 This amount excludes the $11,083 discounted value of the call option liability at December 31, 2013.
Credit risk
In the normal course of business, the Company is exposed to credit risk from its accounts receivable from
customers. The carrying amounts of accounts receivable are net of applicable book revenue provisions and
allowances for doubtful accounts. Allowances for doubtful accounts are estimated based on past experience,
specific risks associated with the customer and other relevant information. Under a billing and collection
agreement with a third party, the Book Publishing Segment has a net receivable of $18.6 million (U.S. $17.5
million) at December 31, 2013 (December 31, 2012 – $23.5 million (U.S. $23.6 million)). The Company believes
TORSTAR CORPORATION 2013 ANNUAL REPORT 89
TORSTAR - Consolidated Financial Statements
that the credit risk associated with this balance is mitigated by the financial stability and payment history of the
third party.
The Company is exposed to credit related losses in the event of non-performance by counterparties to the
derivative instruments described above. Given their high credit ratings, the Company does not anticipate any
counterparties failing to meet their obligations. The Company has a policy, approved by the Board of Directors, of
only contracting with major financial institutions as counterparties.
The maximum exposure to credit risk is the carrying value of the financial assets.
The following table sets out the ageing of the trade receivables:
Gross accounts receivable:
Current
Up to three months past due date
Three to twelve months past due date
Impaired
Book revenue provisions
Allowances for doubtful accounts
December 31,
2013
December 31,
2012
$205,488
103,618
21,495
441
331,042
(69,234)
(7,585)
$254,223
$222,066
94,857
14,764
487
332,174
(67,331)
(7,353)
$257,490
The continuity of the allowance for doubtful accounts is as follows:
Balance, beginning of year
Utilized
Income statement movements
Exchange differences and other
Balance, end of year
Market risk
Year ended December 31
2013
($7,353)
3,150
(3,373)
(9)
($7,585)
2012
($6,500)
4,072
(4,971)
46
($7,353)
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect
the Company’s income or the value of its financial instruments.
a) Foreign currency risk
The Company’s primary exposure to foreign currency risk is through Harlequin’s international operations. The
most significant foreign currency exposure is to movements in the U.S. dollar/Cdn. dollar exchange rate. To
manage this exchange risk in its operating results, the Company’s practice is to enter into forward foreign
exchange contracts to hedge a portion of its U.S dollar revenues as detailed below. A $0.05 higher (lower)
average U.S. dollar/Cdn. dollar exchange rate during the year ended December 31, 2013 would have
increased (decreased) net income by approximately $0.2 million (2012 – $0.6 million).
The Company has entered into forward foreign exchange contracts to allow it to convert a portion of its
expected future U.S. dollar revenue into Canadian dollars. The forward foreign exchange contracts establish
a rate of exchange of Canadian dollar per U.S. dollar of $1.05 for U.S. $40.0 million in 2014 and $1.07 for
U.S. $20.0 million in 2015 (December 31, 2012 – $1.02 for U.S. $40.0 million in 2013 and $1.04 for U.S.
$10.0 million in 2014). These forward foreign exchange contracts have been designated as cash flow hedges
and the net fair value of these contracts was $0.9 million unfavourable at December 31, 2013 (December 31,
2012 – $1.3 million favourable).
Forward foreign exchange contracts settled in 2013 established a rate of exchange of Canadian dollar per
U.S. dollar of $1.02 for U.S. $50.0 million (2012 – $1.03 for U.S. $52.4 million).
TORSTAR CORPORATION 2013 ANNUAL REPORT 90
TORSTAR - Consolidated Financial Statements
In order to offset the exchange risk on its consolidated statement of financial position from net U.S. dollar
denominated assets, the Company maintains a certain level of U.S. dollar denominated debt as indicated in
Note 14(a)(iii). Effective January 1, 2011, the Company designated $80 million of its U.S. dollar debt as a
hedge of its U.S. dollar denominated net investment in subsidiaries with the U.S. dollar as their functional
currency. Gains or losses on the translation of the designated hedge amount are transferred to OCI to offset
any gains or losses on translation of the net investments in subsidiaries with the U.S. dollar as their functional
currency. There was no hedge ineffectiveness during the years ended December 31, 2013 and 2012.
From time to time, the Company may also enter into forward foreign exchange contracts to hedge other
currencies (Yen, Euro, Pound Sterling) realized in Harlequin’s overseas operations. During 2013, the
Company entered into forward foreign exchange contracts, which establish a rate of exchange of Canadian
dollar per Euro of $1.47, to allow it to convert €8.0 million of its expected future cash flows in 2014 into
Canadian dollars. These Euro forward foreign exchange contracts were not designated as cash flow hedges
and the net fair value of these contracts was negligible at December 31, 2013.
b)
Interest rate risk
The Company’s interest rate risk arises from borrowings issued at variable rates which expose the Company
to cash flow interest rate risk. The Company manages this risk through the use of interest rate swap
contracts to fix the interest rate on a portion of the debt as detailed in Note 14.
An assumed increase of 1% in the Company’s short term borrowing rates during the year ended December
31, 2013 would have decreased net income by $0.8 million (2012 – $0.9 million), with an equal but opposite
effect for an assumed decrease of 1% in short term borrowing rates.
16. CAPITAL MANAGEMENT
The Company’s capital management objectives are to maintain financial flexibility in order to preserve its capacity
to meet its financial commitments, to pay dividends and to meet its potential obligations resulting from internal
growth and acquisitions.
The Company defines capital as:
• Total equity
• Long term debt
• Bank overdraft net of cash and cash equivalents
Total managed capital was as follows:
Total equity
Long term debt
Bank overdraft
Cash and cash equivalents
December 31,
2013
$796,784
175,898
1,741
(19,151)
$955,272
December 31,
2012
$723,680
178,027
9,767
(24,827)
$886,647
The Company manages its capital structure in accordance with changes in economic conditions. In order to
maintain or adjust its capital structure, subject to capital market conditions, the Company may elect to adjust the
amount of debt outstanding, adjust the amount of dividends paid to shareholders, return capital to its
shareholders, repurchase its shares in the marketplace or issue new shares.
The Company is currently meeting all its financial commitments. The Company’s credit facilities are subject to
financial tests and other covenants with which it was in compliance at December 31, 2013.
There have been no changes in the Company’s approach to capital management during the year.
The Company is not subject to any external capital requirements.
TORSTAR CORPORATION 2013 ANNUAL REPORT 91
TORSTAR - Consolidated Financial Statements
17. PROVISIONS
Balance at January 1, 2012
Provisions made during the year
Reversals of provisions during the year
Adjustment to contingent consideration
Foreign exchange
Provisions paid during the year
Interest accretion
Balance at December 31, 2012
Provisions made during the year
Reversals of provisions during the year
Adjustment to contingent consideration
Foreign exchange
Provisions paid during the year
Interest accretion
Balance at December 31, 2013
Current
Non-current
Balance at December 31, 2012:
Current
Non-current
Balance at January 1, 2012:
Current
Non-current
Restructuring
Restructuring
Legal
Contingent
consideration
$31,097
17,327
(288)
4
(21,657)
376
26,859
38,171
(1,911)
17
(26,790)
304
$36,650
$20,535
$16,115
$13,295
$13,564
$15,305
$15,792
$218
(68)
150
100
$250
$250
$150
$218
$7,648
693
258
(4)
(5,947)
512
3,160
45
(979)
(2,127)
59
$158
$22
$136
$2,204
$956
$6,534
$1,114
Total
$38,963
18,020
(356)
258
(27,604)
888
30,169
38,316
(1,911)
(979)
17
(28,917)
363
$37,058
$20,807
$16,251
$15,649
$14,520
$22,057
$16,906
During the year ended December 31, 2013, the Company recorded restructuring and other charges of $37.2
million, which included restructuring provisions of $36.3 million and other charges of $0.9 million. Restructuring
provisions of $33.2 million were recorded in the Media Segment and $3.1 million in the Book Publishing Segment
for staff reductions. Other charges of $0.9 million were recorded in respect of litigation expenses in the Book
Publishing Segment.
In 2012, the Company recorded restructuring and other charges of $17.4 million, which included restructuring
provisions of $17.0 million and other charges of $0.4 million.
Restructuring provisions of $16.1 million were recorded in the Media Segment for staff reductions and the Book
Publishing Segment recorded $0.9 million for staff reductions in the United Kingdom and North America. Other
charges of $0.4 million were recorded in respect of litigation expenses in the Book Publishing Segment.
The non-current restructuring provisions relate to the Media Segment and are expected to be paid out through
2028.
Legal
The Company is involved in various legal actions, which arise in the ordinary course of business. While the final
outcome of these matters cannot be predicted with certainty, any additional liability that may arise from such
contingencies is not expected to have a material adverse effect on the financial position or results of operations of
the Company.
TORSTAR CORPORATION 2013 ANNUAL REPORT 92
TORSTAR - Consolidated Financial Statements
In 2012, Harlequin was named as defendant in a class action complaint pertaining to author ebook royalties.
Harlequin believes that the authors have been recompensed fairly and properly for their work. A motion to
dismiss the complaint was filed and on April 2, 2013, the court ruled in favour of Harlequin, dismissing the class
action complaint against it. On April 30, 2013, the plaintiffs filed an appeal. The appeal has now been fully
briefed and oral arguments were heard in November 2013.
Contingent consideration
The contingent consideration provision is an estimate of the fair value of contingent consideration for acquisitions,
which are primarily based on revenue and earnings levels estimated to be realized by the acquired businesses for
specified periods following the acquisition.
18. OTHER LIABILITIES
Employees’ shares subscribed (note 21(b))
RSU Plan (note 21(c))
DSU Plan (note 21(e))
Other employment benefits
Call option liability (notes 4 and 15)
Lease inducements
Other
19. EMPLOYEE FUTURE BENEFITS
December 31,
2013
$2,248
1,196
2,867
2,749
1,322
2,043
$12,425
December 31,
2012
$2,928
1,096
3,123
3,297
10,951
1,729
2,238
$25,362
The Company maintains a number of defined benefit plans which provide pension benefits to its employees
primarily in the Province of Ontario and the United States. The Ontario registered pension plans are regulated by
the Financial Services Commission of Ontario and the United States plan conforms to the tax qualification rules of
the Internal Revenue Code and the legal requirements of the Employees Retirement Income Security Act (ERISA)
and related pension law. Pension benefits are calculated based on a combination of years of service and
compensation levels. The contributions for the most significant plans are based on career average earnings with
a base year upgrade. Pensionable earnings for years of service prior to the base year are calculated using the
base year earnings. The current base year for Canadian plans is 2005. None of the plans include mandatory
indexing provisions. The assets of the funded plans are held by third party trustees. Funding for the plans is
comprised of employer and employee contributions. The determination of the minimum level of Company
contributions is calculated using actuarial valuations that are prepared by independent actuaries based on the
provisions in each plan and legislative regulations. The obligations for unfunded plans are paid when the
obligation falls due. All defined benefit pension plans are closed to new members.
The Company also maintains capital accumulation plans in Canada, the United States and in certain overseas
countries in which Harlequin operates. Employee contributions are matched by the Company according to plan
formulae and the contributions are held and managed by third party providers. The Company has no further
payment obligations once the matching contributions have been paid.
Post employment benefits other than pensions provide for various health and life insurance benefits to employees
in the newspaper operations hired prior to August 23, 2000. The annual costs are calculated by independent
actuaries and are based on historical and projected usage patterns and costs.
Governance of the above plans is the Company’s responsibility. The Pension Committee of the Company’s
Board of Directors provides oversight of the registered pension plans and capital accumulation plans in North
America.
TORSTAR CORPORATION 2013 ANNUAL REPORT 93
TORSTAR - Consolidated Financial Statements
Information concerning the Company’s post employment benefit plans is as follows:
Net defined benefit plan obligations
Changes to the net defined benefit obligation (asset) were as follows:
At January 1, 2012
Expense recognized in
statement of income
Salaries and benefits
Interest and financing costs
Amounts recognized in OCI
Contributions to plan
Foreign exchange
At December 31, 2012
Expense recognized in
statement of income
Salaries and benefits
Restructuring and other
charges
Interest and financing costs
Amounts recognized in OCI
Contributions to plan
Foreign exchange
At December 31, 2013
19,212
7,237
26,449
39,896
(69,979)
$169,104
21,270
744
5,960
27,974
(172,747)
(61,639)
($37,308)
Pension plans
Funded
Canada
$172,738
United States
$11,833
Unfunded1
$23,417
Post
employment
benefit plans
$56,039
1,240
432
1,672
1,577
(2,504)
(257)
$12,321
1,160
994
2,154
2,529
(1,637)
(7)
$26,456
480
2,418
2,898
(8,964)
(2,420)
$47,553
Total1
$264,027
22,092
11,081
33,173
35,038
(76,540)
(264)
$255,434
1,181
1,019
359
23,829
464
1,645
(6,816)
(1,711)
904
$6,343
946
1,965
(857)
(1,451)
170
$26,283
(382)
1,818
1,795
(4,126)
(2,431)
$42,791
362
9,188
33,379
(184,546)
(67,232)
1,074
$38,109
1 As at December 31, 2013, the unfunded pension plan includes an executive retirement plan liability of $24.7 million
(December 31, 2012 – $25.0 million) which is supported by an outstanding letter of credit of $26.8 million (December 31,
2012 – $31.1 million).
A summary of the components of the net defined benefit obligation as at December 31, 2013 and 2012 is as
follows:
2013
Defined benefit obligations
Fair value of plan assets
Funded status deficit (asset)
Minimum funding liability
Net defined benefit obligation
(asset)
Recorded in:
Assets
Liabilities
Pension plans
Funded
Canada
$859,832
(900,436)
(40,604)
3,296
United States
$27,509
(21,166)
6,343
Post
employment
benefit plans
$42,791
Unfunded
$26,283
26,283
42,791
Total
$956,415
(921,602)
34,813
3,296
($37,308)
$6,343
$26,283
$42,791
$38,109
$44,532
7,224
$6,343
$26,283
$42,791
$44,532
82,641
TORSTAR CORPORATION 2013 ANNUAL REPORT 94
TORSTAR - Consolidated Financial Statements
2012
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Pension plans
Funded
Canada
$954,239
(785,135)
$169,104
United States
$28,794
(16,473)
$12,321
Post
employment
benefit plans
$47,553
Unfunded
$26,456
$26,456
$47,553
Total
$1,057,042
(801,608)
$255,434
The following charts provide a summary of changes in the defined benefit obligation and the fair value of plan
assets during 2013 and 2012:
2013
Pension plans
Funded
Canada
United States
Unfunded
Post
employment
benefit plans
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses (gains)
Participant contributions
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Foreign exchange
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Interest income included in net
interest expense
Remeasurement gains
Benefits paid
Employer contributions
Participant contributions
Administration costs
Foreign exchange
Fair value, end of year
$954,239
19,603
36,824
(59,032)
(97,375)
4,732
97
1,026
(625)
343
$859,832
$28,794
1,022
1,145
(490)
(5,022)
$26,456
1,019
946
(1,451)
(857)
2,060
$27,509
170
$26,283
$47,553
359
1,818
(2,431)
(4,126)
(382)
$42,791
$785,135
$16,473
30,864
78,668
(59,032)
61,639
4,732
(1,570)
$900,436
681
1,794
(490)
1,711
(159)
1,156
$21,166
($1,451)
1,451
($2,431)
2,431
Total
$1,057,042
22,003
40,733
(63,404)
(107,380)
4,732
97
1,026
(1,007)
343
2,230
$956,415
$801,608
31,545
80,462
(63,404)
67,232
4,732
(1,729)
1,156
$921,602
Funded status – deficit (asset)
($40,604)
$6,343
$26,283
$42,791
$34,813
TORSTAR CORPORATION 2013 ANNUAL REPORT 95
TORSTAR - Consolidated Financial Statements
2012
Pension plans
Funded
Canada
United States
Unfunded
Post
employment
benefit plans
$56,039
480
2,418
(2,420)
(8,964)
$25,186
1,041
1,251
(435)
2,298
$23,417
943
994
(1,637)
2,529
217
$881,845
17,808
38,843
(56,074)
66,797
4,928
560
(770)
302
$954,239
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses (gains)
Participant contributions
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Foreign exchange
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Interest income included in net
interest expense
Remeasurement gains
Benefits paid
Employer contributions
Participant contributions
Administration costs
Foreign exchange
Fair value, end of year
(547)
$28,794
(7)
$26,456
$47,553
$709,107
$13,353
31,606
26,901
(56,074)
69,979
4,928
(1,312)
$785,135
819
721
(435)
2,504
(199)
(290)
$16,473
($1,637)
1,637
($2,420)
2,420
Total
$986,487
20,272
43,506
(60,566)
62,660
4,928
217
560
(770)
302
(554)
$1,057,042
$722,460
32,425
27,622
(60,566)
76,540
4,928
(1,511)
(290)
$801,608
Funded status – deficit
$169,104
$12,321
$26,456
$47,553
$255,434
Net benefit expense for defined benefit plans recognized in the 2013 and 2012 consolidated statement of income
is as follows:
2013
Pension plans
Funded
United States
$1,022
464
Unfunded
$1,019
946
Current service cost
Net interest expense
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Administration costs
Net benefit expense
Canada
$19,603
5,960
97
1,026
(625)
343
1,570
$27,974
Post
employment
benefit plans
$359
1,818
(382)
Total
$22,003
9,188
97
1,026
(1,007)
343
1,729
$33,379
159
$1,645
$1,965
$1,795
TORSTAR CORPORATION 2013 ANNUAL REPORT 96
Total
$20,272
11,081
217
560
(770)
302
1,511
$33,173
$112,935
(11,962)
6,407
107,380
80,462
TORSTAR - Consolidated Financial Statements
2012
Pension plans
Funded
Current service cost
Net interest expense
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Administration costs
Net benefit expense
Canada
$17,808
7,237
560
(770)
302
1,312
$26,449
United States
$1,041
432
Unfunded
$943
994
217
Post
employment
benefit plans
$480
2,418
199
$1,672
$2,154
$2,898
Amounts recognized in the 2013 and 2012 consolidated statement of comprehensive income (before tax):
2013
Pension plans
Funded
Canada
United States
Unfunded
Post
employment
benefit plans
Total
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Demographic assumptions
Experience adjustment
Total actuarial gains (losses)
Return on plan assets excluding
amounts included in net
interest expense
Total remeasurement gains
(losses)
Change in minimum funding
liability
$102,643
(11,686)
6,418
$4,575
511
(64)
97,375
5,022
$1,434
(485)
(92)
857
$4,283
(302)
145
4,126
1,794
6,816
78,668
176,043
(3,296)
857
4,126
187,842
(3,296)
Amounts recognized in OCI
$172,747
$6,816
$857
$4,126
$184,546
2012
Pension plans
Funded
Canada
United States
Unfunded
Post
employment
benefit plans
Total
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Demographic assumptions
Experience adjustment
Total actuarial gains (losses)
Return on plan assets excluding
amounts included in net
interest expense
Total remeasurement gains
($63,558)
(3,239)
($2,153)
(92)
(53)
($2,505)
(24)
($2,789)
2,677
9,076
($71,005)
2,585
5,760
(66,797)
(2,298)
(2,529)
8,964
(62,660)
26,901
721
27,622
(losses)
($39,896)
($1,577)
($2,529)
$8,964
($35,038)
TORSTAR CORPORATION 2013 ANNUAL REPORT 97
TORSTAR - Consolidated Financial Statements
The significant assumptions used by the Company in 2013 and 2012 are noted below. Assumptions regarding
future mortality are based on actuarial advice in accordance with published mortality statistics and experience.
For the Canadian plans in 2013, the Company used 95% of 1994 Uninsured Pensioner projected generationally
using scale AA effective December 31, 2013. For 2012, mortality was based on 1994 Uninsured Pensioner
projected generationally using scale AA at December 31, 2012.
To determine benefit obligation at end of year:
Discount rate
Rate of future compensation increase
4.2% to 4.7% 3.4% to 3.9%
2.5% to 3.0% 3.0% to 4.0%
Pension plans
2013
2012
Post employment benefit
plans
2013
4.7%
2012
3.9%
To determine benefit expense:
Discount rate
Rate of future compensation increase
Health care cost trend rates at end of year:
Initial rate
Ultimate rate
Year ultimate rate reached
Longevity for pensioners currently at age 65:
3.4% to 3.9% 4.3% to 4.4%
2.5% to 3.0% 3.0% to 4.0%
3.9%
4.4%
4.2%
5.0%
2017
7.5%
5.0%
2017
Male
Female
20.2 years
22.5 years
19.8 years
22.1 years
The effect of a one percent increase or decrease in significant financial assumptions used for the Company’s
pension and post employment benefit plans would result in an increase (decrease) in the accrued benefit
obligation at December 31, 2013:
Pension plans:
Discount rate
Rate of compensation increase
Post employment benefit plans:
Discount rate
Per capita cost of health care
Accrued benefit obligation
1% increase
1% decrease
($114,791)
9,904
(4,774)
1,160
$132,275
(9,647)
5,879
(1,005)
For the significant pension plans, the impact of a change in longevity rates if members were one year younger
than their actual age would increase the net benefit obligation by 2.1%.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions
constant, which in practice is unlikely to occur as changes in some of the assumptions may be correlated. The
calculation of the sensitivities uses the same methods that were applied when calculating the net accrued benefit
obligation in the statement of financial position.
TORSTAR CORPORATION 2013 ANNUAL REPORT 98
TORSTAR - Consolidated Financial Statements
Pension plan assets for the Canadian plans, measured as at December 31, 2013 and 2012 are as follows:
Investments quoted in active markets:
Cash and cash equivalents
Equity investments
Canada
United States
Outside North America
Unquoted investments:
Fixed income
Government of Canada
Provinces of Canada
Canadian Corporations
Pooled funds
Equity – Outside North America
Fixed Income – Canadian Corporations
2013
$30,810
103,899
113,464
82,380
85,551
249,908
68,266
77,414
88,744
$900,436
2012
$64,226
106,773
107,856
41,359
89,637
59,376
78,578
124,282
113,048
$785,135
Pension plan assets for the United States plan were invested in pooled U.S. equity and pooled U.S. fixed income
investments with each representing 50% of the portfolio.
Through its defined benefit plans, the Company is exposed to a number of risks the most significant of which
include changes in long-term discount rates used to calculate plan liabilities, the rate of return on plan assets, and
changes in demographics and plan experience. These factors impact the potential for inadequate plan funding,
unfunded obligations and increases in contributions.
The Company periodically reviews its targeted investment portfolio mix. At December 31, 2013, the target
allocation mix was 50% equity securities and 50% fixed income securities for the Canadian and U.S. funded
plans.
The Company’s 2013 actual funding for its Canadian registered pension plans was approximately $62 million.
The Company has prepared actuarial reports as of September 1, 2013 for its significant plans. Estimated funding
in 2014 will be approximately $40 million. The next required actuarial reports will be as of September 1, 2016.
The weighted average duration of the defined benefit obligation is 12.9 years. As at December 31, 2013, the
expected maturity profile of the undiscounted pension plan and post-employment benefits is $52 million in the
next year, $475 million in 2 to 10 years and $1,300 million in over 10 years.
Capital accumulation plans
The total amount expensed for capital accumulation plans in 2013 was $3.7 million (2012 – $3.5 million).
TORSTAR CORPORATION 2013 ANNUAL REPORT 99
TORSTAR - Consolidated Financial Statements
20. SHARE CAPITAL
(a) Rights attaching to the Company’s share capital:
(i) Class A (voting) and Class B (non-voting) shares, no par value
Class A and Class B shareholders may elect to receive dividends in cash or stock dividends in the form
of Class B shares. Class A shares are convertible at any time at the option of the holder into Class B
shares.
(ii) Voting provisions
Class B shares are non-voting unless the Company has failed to pay the full quarterly preferential
dividend (7.5 cents per annum) on the Class B non-voting shares in each of eight consecutive quarters.
(iii) Restrictions on transfer
Registration of the transfer of any of the Company’s shares may be refused if such transfer could
jeopardize either the ability of the Company to engage in broadcasting or its status as a Canadian
newspaper or periodical publisher.
(b) Summary of changes in the Company’s share capital:
Class A shares (voting)
Balance, beginning of year
Converted to Class B
Balance, end of year
Class B shares (non-voting)
Balance, beginning of year
Converted from Class A
Dividend reinvestment plan
Issued under ESPP
Share option plan
Other
Balance, end of year
Year ended December 31
2013
2012
Shares
Amount
Shares
Amount
9,861,554
(7,740)
9,853,814
$2,679
(2)
$2,677
9,868,706
(7,152)
9,861,554
$2,681
(2)
$2,679
69,882,308
7,740
71,571
101,030
2,050
70,064,699
$394,746
2
457
710
13
$395,928
69,654,273
7,152
32,919
127,739
58,450
1,775
69,882,308
$392,653
2
282
1,315
478
16
$394,746
Total Class A and Class B shares
79,918,513
$398,605
79,743,862
$397,425
An unlimited number of Class B shares is authorized. While the number of Class A shares is unlimited, the
issuance of further Class A shares, may under certain circumstances, require unanimous board approval.
(c) Earnings per share
Basic earnings per share amounts have been determined by dividing net income attributable to equity
shareholders by the weighted average number of Class A and Class B shares outstanding during the year.
The treasury stock method is used for the calculation of the dilutive effect of share options and other dilutive
securities. In calculating diluted per share amounts under the treasury stock method, the numerator remains
unchanged from the basic per share calculation as the assumed exercise of the Company’s share options
and ESPP does not result in an adjustment to income.
TORSTAR CORPORATION 2013 ANNUAL REPORT 100
TORSTAR - Consolidated Financial Statements
The reconciliation of the denominator in calculating diluted per share amounts is as follows:
(thousands of shares)
Weighted average number of shares outstanding, basic
Effect of dilutive securities
– share options
Weighted average number of shares outstanding, diluted
2013
79,840
79,840
2012
79,671
275
79,946
Year ended December 31
Outstanding stock options totaling 4,267,450 (2012 – 1,989,134), which are anti-dilutive have been excluded
from the above calculation of dilutive securities.
(d) Dividends
The following dividends were declared and distributed by the Company per Class A (voting) share and Class
B (non-voting) share:
First quarter ended March 31: 13.125 cents (2012 – 12.5 cents)
Second quarter ended June 30: 13.125 cents (2012 – 13.125 cents)
Third quarter ended September 30: 13.125 cents (2012 – 13.125 cents)
Fourth quarter ended December 31: 13.125 cents (2012 – 13.125 cents)
Total dividends
Year ended December 31
2012
$9,945
10,463
10,464
10,464
$41,336
2013
$10,466
10,482
10,484
10,486
$41,918
21. SHARE-BASED COMPENSATION PLANS
(a) Share option plan
The maximum number of shares that may be issued under the share option plan is 12,500,000 and the
number of shares reserved for issuance to insiders (together with shares issuable to insiders under all other
share compensation arrangements) cannot exceed 10% of the outstanding Class A and Class B shares. The
term of the options shall not exceed ten years from the date the option is granted. Up to 25% of an option
grant may be exercised twelve months after the date granted, and a further 25% after each subsequent
anniversary. As of December 31, 2013, options to purchase 10,114,677 shares have been granted, net of
options cancelled (December 31, 2012 – 9,713,058).
A summary of changes in the share option plan is as follows:
Units outstanding, beginning of year
Granted
Exercised
Forfeited or expired
Units outstanding, end of year
2013
2012
Share options
3,865,831
835,752
(434,133)
4,267,450
Weighted
average
exercise price
$14.12
$7.81
($21.11)
$12.18
Share options
3,995,656
656,233
(58,450)
(727,608)
3,865,831
Weighted
average
exercise price
$16.11
$8.28
($7.07)
($20.32)
$14.12
The weighted average share price when the options were exercised during 2012 was $9.98.
TORSTAR CORPORATION 2013 ANNUAL REPORT 101
TORSTAR - Consolidated Financial Statements
As at December 31, 2013, outstanding share options were as follows:
Range of
exercise price
$5.75 – 8.37
$12.21 – 19.61
$21.85 – 29.01
2,635,730
915,438
716,282
$5.75 – 29.01
4,267,450
Share
options
outstanding
Weighted average
remaining
contractual life
Weighted
average
exercise price
Share
options
exercisable
Weighted
average exercise
price
7.2 years
5.1 years
0.9 years
6.4 years
$7.66
$15.77
$24.20
$12.18
1,166,118
692,297
716,282
2,574,697
$7.32
$16.92
$24.20
$14.60
The fair value of the share options on the date of grant and the key assumptions used are as follows:
Fair Value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected weighted average time until exercise (years)
2013
$1.42 – $1.71
1.5% – 1.7%
6.7%
38.5% – 44.4%
6
2012
$1.51 – $1.80
1.3% – 1.5%
6.0%
36.7% – 42.8%
6
In January 2014, 1,066,416 share options were granted at an exercise price of $5.85 per share.
(b) ESPP
As at December 31, outstanding employee subscriptions were as follows:
Maturing in
Subscription price at entry date
Number of shares
2013
2012
2014
$10.10
110,068
2015
$6.38
178,092
2013
$12.53
123,004
2014
10.10
137,278
The fair value of the subscriptions on the subscription date and the key assumptions used are as follows:
Fair Value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise (years)
(c) RSU plan
A summary of changes in the RSU plan is as follows:
Units outstanding, beginning of year
Vested and paid
Granted
Forfeited
Units outstanding, end of year
2013
$0.55
1.0%
8.2%
28.0%
2
2013
575,204
(234,165)
316,336
(22,392)
634,983
2012
$1.35
1.1%
5.2%
32.2%
2
2012
657,307
(262,053)
217,478
(37,528)
575,204
As at December 31, 2013, 336,833 units have been accrued at a value of $2.0 million of which 132,577 units
have been accrued in Accounts payable and accrued liabilities at a value of $0.8 million and 204,256 units
TORSTAR CORPORATION 2013 ANNUAL REPORT 102
TORSTAR - Consolidated Financial Statements
have been accrued in Other liabilities at a value of $1.2 million (December 31, 2012 – 374,456 units accrued
at a value of $2.9 million of which 234,165 units have been accrued in Accounts payable and accrued
liabilities at a value of $1.8 million and 140,291 units have been accrued in Other liabilities at a value of $1.1
million).
The Company has entered into a derivative instrument in order to hedge the expense for 450,000 RSUs.
Changes in the fair value of this instrument are recorded as compensation expense and offset the impact of
changes in the value of the RSUs that have been accrued. As RSUs are accrued over the three-year vesting
period, there is not an exact offset each period.
In January 2014, 366,994 RSUs have been granted and 132,577 RSUs have vested and were paid.
(d) In 2013, the Company recognized share-based compensation expense totaling $3.0 million (2012 - $2.8
million).
(e) DSU plan
A summary of changes in the DSU plan is as follows:
Units outstanding, beginning of year
Granted
Directors’ mandatory retainer
Directors’ voluntary election
Dividends
Redemption
Units outstanding, end of year
2013
399,890
53,404
6,273
11,371
36,395
(17,203)
490,130
2012
320,605
50,724
8,843
41,223
24,541
(46,046)
399,890
As at December 31, 2013, the 490,130 units outstanding were valued at $2.9 million (December 31, 2012 –
399,890 units valued at $3.1 million).
The Company has entered into a derivative instrument in order to offset its exposure to 450,000 units.
Changes in the fair value of this instrument are recorded as compensation expense and offset the impact of
changes in the value of the outstanding DSUs.
22. ACCUMULATED OTHER COMPREHENSIVE LOSS (NET OF TAX)
Foreign currency
translation
adjustment
As at January 1, 2012
OCI
As at December 31, 2012
OCI
As at December 31, 2013
($291)
(5,102)
($5,393)1
6,976
$1,583¹
Cash flow
hedges
($6,324)
2,048
($4,276)²
610
($3,666)²
1Net of deferred income tax asset of $nil (2012 – $nil)
²Net of deferred income tax asset of $1,370 (2012 – $1,470)
³Net of current income tax recovery of $nil (2012 – $nil)
Available-for-
sale
securities
Net
investment
hedge
($129)
123
($6)1
6
($1,542)
1,518
($24)³
(5,496)
Total
($8,286)
(1,413)
($9,699)
2,096
($7,603)
($5,520)
³
TORSTAR CORPORATION 2013 ANNUAL REPORT 103
TORSTAR - Consolidated Financial Statements
23. ACQUISITIONS AND INVESTMENTS
2013 Acquisitions
During the year ended December 31, 2013, the Company completed an acquisition in its Media Segment with a
purchase price of approximately $0.1 million, which was the estimated fair value of contingent consideration. The
Company also made portfolio investments for cash of approximately $0.4 million.
In addition, the Company made payments of $2.1 million for contingent consideration in respect of prior year
acquisitions, of which $2.0 million related to the Media Segment (WagJag and Foodscrooge) and $0.1 million
related to the Book Publishing Segment (Heartsong Presents).
Total cash used for acquisition and portfolio investments in 2013 was $2.5 million.
The acquisition made was in respect of Inside Queen’s Park (an electronic newsletter with a focus on Queen’s
Park) on December 31, 2013. This acquisition did not contribute any revenue or operating profit in the Media
Segment in 2013. If the acquisition had occurred on January 1, 2013, the Company’s consolidated revenues and
operating profit would have been $1,309.1 million and $11.3 million respectively.
The portfolio investments of $0.4 million included an additional investment of approximately $0.3 million in Kanetix
Inc., bringing the Company’s interest to 11.7%.
The fair value of assets acquired and liabilities assumed from the acquisition and investments completed are as
follows:
2013
Book
Publishing
Segment
Media
Segment
Total
Media
Segment
2012
Book
Publishing
Segment
Assets:
Property, plant and equipment (note 8)
Indefinite-life intangible assets (note 9)
Finite-life intangible assets (note 9)
Goodwill (note 10)
Non-cash working capital
Total purchase price
Deferred payments (Accounts payable)
Deferred payments (Other liabilities)
Contingent consideration
Cash consideration paid
Deferred payments on prior acquisitions
Contingent consideration on prior acquisitions
Investments
$46
46
(45)
1
$46
46
(45)
1
2,077
2,078
357
$50
50
2,127
2,128
357
$18
50
1,172
1,074
(144)
2,170
(100)
(99)
(546)
1,425
3,086
5,946
10,457
1,095
$101
506
(129)
478
(147)
331
331
Total
$18
151
1,678
1,074
(273)
2,648
(100)
(99)
(693)
1,756
3,086
5,946
10,788
1,095
Total cash used in acquisitions and investments
$2,435
$50
$2,485
$11,552
$331
$11,883
2012 Acquisitions
In 2012, the Company completed acquisitions with a total purchase price of $2.7 million, of which $2.2 million and
$0.5 million related to the Media Segment and the Book Publishing Segment respectively. The $2.7 million total
purchase price included $1.8 million of cash; $0.2 million of deferred purchase payments and a $0.7 million
estimate of the fair value of contingent consideration. The Company also made portfolio investments for cash of
$1.1 million.
TORSTAR CORPORATION 2013 ANNUAL REPORT 104
TORSTAR - Consolidated Financial Statements
In addition, the Company made deferred purchase payments of $3.1 million and payments of $5.9 million for
contingent consideration in respect of prior year acquisitions in the Media Segment. The deferred purchase
payments were made in respect of the acquisitions of Performance Printing, Autocatch and Gottarent. The
contingent consideration payments related to WagJag and Rosebud.
Total cash used for acquisitions and portfolio investments in 2012 was $11.9 million.
The Media Segment acquisitions included Flyermail (a flyer distributor in the Kingston and Belleville regions) on
May 17, 2012; Target Vacations (an online retail e-commerce business-to-consumer travel agency) on August 3,
2012; Deal of The Day (a discount deal website) on August 7, 2012 and Carroll Publishing (a community
newspaper in St. Thomas, Ontario) on October 31, 2012.
The Media Segment acquisitions were accounted for using the purchase method. The amount of goodwill that is
deductible for tax purposes is $0.8 million. Goodwill recognized on the acquisitions was comprised of integration
with existing web-based products; new market penetration; access to knowledge and expertise of travel
management team and workforce.
On January 20, 2012, the Book Publishing Segment acquired Heartsong Presents (a book club).
These acquisitions contributed $0.6 million of revenue and $nil operating profit in the Media Segment and $1.4
million of revenue and $0.1 million of operating profit in the Book Publishing Segment in 2012. If the acquisitions
had occurred on January 1, 2012, the Company’s consolidated revenues and operating profit would have been
$1,408.3 million and $131.4 million respectively.
The portfolio investments of $1.1 million included an investment of $1.0 million in TeamSnap, Inc. (an online
activity management technology platform) on December 21, 2012. These portfolio investments have been
classified as AFS financial assets.
24. GAIN (LOSS) ON SALE OF ASSETS
2013
In July 2013, the Company received proceeds of $0.3 million and recorded a gain of $0.1 million from the sale of
an available-for-sale equity investment.
In June 2013, the Company sold its 50% joint venture interest in the Greek book publishing business to its joint
venture partner for nominal consideration and recorded a loss of $0.2 million.
2012
During the year ended December 31, 2012, the Company recognized a gain on sale of assets of $6.1 million
which consists of $3.4 million from the sale of a portion of its interest in Tuango and $2.7 million from the sale of
assets of Insurance Hotline.
Tuango
On February 29, 2012, the Company sold a portion of its 50% interest in Tuango for net proceeds of $3.9 million
and recorded a gain on sale of assets of $3.4 million. The Company retained a 38.2% interest in Tuango.
In addition, the Company issued an option, exerciseable within three years, to the purchaser to acquire an
additional 4.9% interest for $1.8 million which is at the same fair value basis as the sale transaction noted above.
If the purchaser exercises this option, the Company’s ownership interest in Tuango will be reduced to 33.3%. The
option has been valued at an estimated current fair value of $0.3 million which has been included in Other
liabilities in the consolidated statement of financial position.
As a result of the sale transaction and revised shareholders’ agreement, the Company lost joint control but
determined it still has significant influence and therefore changed from accounting for the investment as a joint
venture to accounting for the investment as an associate.
TORSTAR CORPORATION 2013 ANNUAL REPORT 105
TORSTAR - Consolidated Financial Statements
Insurance Hotline
In November 2012, the Company sold the assets of Insurance Hotline for net proceeds of $7.0 million, which
included cash of approximately $2.0 million and a 12.6% investment in Kanetix Ltd. (an online Canadian
insurance marketplace) valued at $5.0 million. This investment was classified as an AFS financial asset. The
Company recorded a gain of $2.7 million on the transaction.
25. INVESTMENT WRITE-DOWN AND LOSS
The Company recorded the following investment write-downs in 2013 and 2012:
Year ended December 31
Write-down of investment in Multimedia Nova Corporation
Write-down of investment in Social Game Universe
2013
($62)
(500)
($562)
2012
($93)
($93)
26. OTHER NON-CASH ITEMS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Share-based compensation plans
Foreign exchange
Restructuring provisions
Other long-term receivables
Media inventory provided to Shop.ca (note 7)
Loss (gain) on sale of assets (note 24)
Interest accretion (note 14(c))
Adjustment to contingent consideration (note 17)
Investment write-down and loss (note 25)
Other
27. COMMITMENTS AND CONTINGENCIES
Year ended December 31
2013
$1,184
1,506
2,247
(3,020)
(965)
152
494
(979)
562
(1,798)
($617)
2012
$1,263
248
(2,604)
(3,847)
(6,080)
1,018
258
93
(1,096)
($10,747)
In connection with a previous discontinued operation, the Company sub-leased certain premises to the acquirer
(sub-lessee) and guaranteed sub-lease payments to be made by the sub-lessee to a third party of approximately
U.S. $1 million per year, ending December 31, 2018. The sub-lease is collateralized by a U.S. $0.7 million
irrevocable letter of credit provided on behalf of the sub-lessee. The sub-lessee for whom the Company had
guaranteed the sub-lease payments filed for protection under Chapter 11 of the United States Bankruptcy Code in
February 2013 and emerged from its Chapter 11 reorganization in June 2013. The sub-lessee assumed the sub-
lease as part of its plan of reorganization and has provided the Company with a replacement letter of credit.
Along with the other shareholders of Kanetix Ltd., the Company has pledged its shares in Kanetix in support of
the Kanetix credit facility.
TORSTAR CORPORATION 2013 ANNUAL REPORT 106
TORSTAR - Consolidated Financial Statements
In addition, the Company has the following significant contractual obligations:
Nature of the Obligation
Total
2014
2015 - 2016
2017 - 2018
2019+
Office leases
Services
Acquisitions
Equipment leases
Total
$103,613
$17,274
9,693
11,297
1,760
$126,363
$19,642
5,859
11,190
693
$37,384
$36,724
3,230
42
854
$40,850
$29,973
604
65
213
$30,855
$17,274
28. RELATED PARTY TRANSACTIONS
The aggregate amounts of remuneration for the Company’s key management (including directors), recognized in
the consolidated statement of income and OCI, are set out below:
Salaries and benefits
Post-employment benefits
Share based payments
Other long-term benefits
Total
Year ended December 31
2013
$7,621
(245)
2,808
(56)
$10,128
2012
$7,012
2,996
2,611
276
$12,895
The following summarizes the sales to, purchases from and amounts owed to and by the Company’s joint
ventures and associates:
Joint Ventures
2013
2012
Associates
2013
2012
Sales to
Purchases from
Amounts owed by
Amounts owed to
$6,248
6,182
1,239
3,847
$1,009
1,016
9,123
9,198
$515
562
$2,197
1,134
1,044
1,313
Sales to and purchases of goods and services from related parties were made at market prices. No provisions
have been made for doubtful debts in respect of amounts owed by related parties.
29. EFFECT OF CHANGES IN ACCOUNTING STANDARDS
The effect of the Company’s adoption of the changes in accounting standards described in note 2(t), are
summarized as follows: (i) reconciliation of changes in the consolidated statement of financial position; (ii)
reconciliation of changes in the consolidated statement of income; (iii) reconciliation of changes in the
consolidated statement of comprehensive income; and (iv) reconciliation of changes in the consolidated
statement of cash flows.
TORSTAR CORPORATION 2013 ANNUAL REPORT 107
TORSTAR - Consolidated Financial Statements
(i) Reconciliation of changes in consolidated statement of financial position:
Assets
Current:
Cash and cash equivalents
Receivables
Inventories
Derivative financial instruments
Prepaid expenses and other
current assets
Prepaid and other recoverable
income taxes
Total current assets
Investment in joint ventures
Investment in associated
businesses
Property, plant and equipment
Intangible assets
Goodwill
Other assets
Deferred income tax assets
Originally
Reported
Dec. 31
2012
IFRS 11/12
IAS 28
Restated
Dec. 31
2012
Originally
Reported
Dec. 31
2011
IFRS 11/12
IAS 28
Restated
Jan. 1
2012
$39,021
274,383
34,001
1,272
($14,194)
(10,777)
(2,364)
$24,827
263,606
31,637
1,272
$50,588
278,010
36,995
367
($14,138)
(12,355)
(2,395)
$36,450
265,655
34,600
367
44,236
(982)
43,254
47,063
(794)
46,269
11,195
404,108
42,835
167,104
108,130
648,861
11,823
88,383
(420)
(28,737)
91,258
(9,914)
(5,232)
(20,655)
(52,158)
(3,500)
1,582
10,775
375,371
91,258
32,921
161,872
87,475
596,703
8,323
89,965
2,451
415,474
16,935
177,245
107,845
665,029
1,798
100,441
(522)
(30,204)
107,512
(6,791)
(21,980)
(66,426)
(195)
1,929
385,270
107,512
16,935
170,454
85,865
598,603
1,798
100,246
Total assets
$1,471,244
($27,356)
$1,443,888
$1,484,767
($18,084)
$1,466,683
Liabilities and Equity
Current:
Bank overdraft
Current portion of long-term
debt
Accounts payable and accrued
liabilities
Provisions
Income taxes payable
Total current liabilities
Long term debt
Derivative financial instruments
Provisions
Other liabilities
Employee benefits
Deferred income tax liabilities
Equity:
Share capital
Contributed surplus
Retained earnings
Accumulated other
comprehensive loss
Total equity attributable to
equity shareholders
Minority interests
Total equity
$9,962
($195)
$9,767
$7,661
($248)
$7,413
(16,919)
(315)
(506)
(17,935)
(485)
(722)
(8,214)
195,822
15,649
11,016
232,254
178,027
7,018
14,520
25,362
255,434
7,593
397,425
16,057
317,033
(16,330)
(542)
(280)
(17,400)
(459)
(225)
196,191
210,567
22,599
17,398
454,416
8,761
16,906
26,749
264,027
7,644
395,334
14,828
301,863
(9,699)
(8,286)
(8,214)
(8,214)
720,816
2,864
723,680
703,739
2,525
706,264
212,741
15,964
11,522
250,189
178,027
7,018
14,520
25,847
255,434
8,315
397,425
16,057
325,247
(9,699)
729,030
2,864
731,894
196,191
194,237
22,057
17,118
437,016
8,761
16,906
26,290
264,027
7,419
395,334
14,828
301,863
(8,286)
703,739
2,525
706,264
Total liabilities and equity
$1,471,244
($27,356)
$1,443,888
$1,484,767
($18,084)
$1,466,683
TORSTAR CORPORATION 2013 ANNUAL REPORT 108
TORSTAR - Consolidated Financial Statements
(ii) Reconciliation of changes in the consolidated statement of income for the year ended December 31, 2012:
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
Operating profit
Interest and financing costs
Foreign exchange
Adjustment to contingent consideration
Income from joint ventures
Loss of associated businesses
Gain on sale of assets
Other income
Investment write-down and loss
Income and other taxes
Net income
Attributable to:
Equity shareholders
Minority interests
Net income attributable to equity
shareholders per Class A (voting) and
Class B (non-voting) share
Basic
Diluted
IAS 19R
Restated
$1,406,768
Originally
Reported
$1,485,744
(520,835)
(757,177)
(38,182)
(17,778)
(13,003)
138,769
(8,759)
(246)
(258)
(3,295)
9,811
10,407
(93)
146,336
(42,500)
$103,836
$103,247
$589
IFRS 11/ IFRS 12
IAS 28
($78,976)
27,158
35,636
2,909
389
11,000
(1,884)
(66)
(2)
2,183
493
(3,731)
(10,407)
(13,414)
5,200
($8,214)
($5,808)
(5,808)
(11,081)
(16,889)
4,200
($12,689)
($8,214)
($12,689)
(499,485)
(721,541)
(35,273)
(17,389)
(2,003)
131,077
(19,906)
(248)
(258)
2,183
(2,802)
6,080
(93)
116,033
(33,100)
$82,933
$82,344
$589
$1.30
$1.29
($0.11)
($0.10)
($0.16)
($0.16)
$1.03
$1.03
TORSTAR CORPORATION 2013 ANNUAL REPORT 109
TORSTAR - Consolidated Financial Statements
(iii) Reconciliation of changes in the consolidated statement of comprehensive income for the year ended
December 31, 2012:
Net income
$103,836
($8,214)
($12,689)
$82,933
Originally
Reported
IFRS 11/ IFRS 12
IAS 28
IAS 19R
Restated
Other comprehensive income (loss):
Other comprehensive income (loss) that will be
reclassified to net income (loss) in subsequent
periods:
Unrealized foreign currency translation adjustment
for joint ventures (no income tax effect)
(183)
Unrealized foreign currency translation adjustment
(no income tax effect)
(5,102)
183
Net movement on available-for-sale financial
assets (no income tax effect)
Net movement on cash flow hedges
Income tax effect
Unrealized gain on hedge of net investment
Income tax effect
Other comprehensive income (loss) that will not
be reclassified to net income (loss) in
subsequent periods:
Actuarial gain on employee benefits
Income tax effect
123
2,648
(600)
1,768
(250)
(1,413)
(51,927)
13,400
(38,527)
(183)
(4,919)
123
2,648
(600)
1,768
(250)
(1,413)
16,889
(4,200)
12,689
(35,038)
9,200
(25,838)
Other comprehensive income (loss), net of tax
($39,940)
$12,689
($27,251)
Comprehensive income (loss), net of tax
$63,896
($8,214)
Attributable to:
Equity shareholders
Minority interests
$63,307
$589
($8,214)
$55,682
$55,093
$589
TORSTAR CORPORATION 2013 ANNUAL REPORT 110
TORSTAR - Consolidated Financial Statements
(iv) Reconciliation of changes in the consolidated statement of cash flows for the year ended December 31, 2012:
Originally
Reported
IFRS 11/ IFRS 12
IAS 28
IAS 19R
Restated
($12,689)
(4,200)
16,889
Cash was provided by (used in)
Operating activities
Investing activities
Financing activities
Decrease in cash
Effect of exchange rate changes
Cash, beginning of year
Cash, end of year
Operating activities:
Net income
Amortization and depreciation
Deferred income taxes
Income from joint ventures
Distributions from joint ventures
Loss of associated businesses
Impairment of assets
Non-cash employee benefit expense
Employee benefits funding
Other
Increase in non-cash working capital
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment
and intangible assets
Investment in joint ventures
Investment in associated businesses
Acquisitions and investments
Proceeds from sale of assets
Other
Cash used in investing activities
Financing activities:
Issuance of bankers’ acceptances
Repayment of bankers’ acceptances
Dividends paid
Exercise of share options
Other
Cash used in financing activities
Cash represented by:
Cash
Cash equivalents – short-term investments
Cash and cash equivalents
Bank overdraft
$90,605
(47,733)
(56,112)
(13,240)
(628)
42,927
$29,059
$103,836
38,182
24,200
3,295
13,003
16,284
(76,540)
(24,854)
97,406
(6,801)
$90,605
($33,012)
(11,265)
(11,883)
8,407
20
($47,733)
$5,991
(22,211)
(41,054)
413
749
($56,112)
$29,248
9,773
39,021
(9,962)
$29,059
($770)
593
(177)
68
(13,890)
($13,999)
($8,214)
(2,909)
(2,300)
(2,183)
14,408
(493)
(11,000)
14,107
1,416
(2,186)
($770)
$2,838
(30)
(2,200)
(15)
$593
($8,995)
(5,199)
(14,194)
195
($13,999)
$89,835
(47,140)
(56,112)
(13,417)
(560)
29,037
$15,060
$82,933
35,273
17,700
(2,183)
14,408
2,802
2,003
33,173
(76,540)
(10,747)
98,822
(8,987)
$89,835
($30,174)
(30)
(11,265)
(11,883)
6,207
5
($47,140)
$5,991
(22,211)
(41,054)
413
749
($56,112)
$20,253
4,574
24,827
(9,767)
$15,060
TORSTAR CORPORATION 2013 ANNUAL REPORT 111
BOARD OF DIRECTORS
John A. Honderich
Chair, Torstar Corporation
Former Publisher, Toronto Star
Director since 2004
Campbell R. Harvey
Professor of Finance,
Duke University
Director since 1992
Martin E. Thall
President and Chief Executive Officer
Thall Group of Companies
Director since 2002
Donald Babick
Past President, Southam Publications
Corporate Director
Director since 2004
Elaine B. Berger
Corporate Director
Director since 2006
Daniel A. Jauernig
President and Chief Executive Officer
Classified Ventures, LLC
Director since 2009
Joan T. Dea
Corporate Director
Director since 2009
TORSTAR CORPORATION 2013 ANNUAL REPORT 112
TORSTAR CORPORATION 2013 ANNUAL REPORT 113
BOARD OF DIRECTORS
Alnasir Samji
Managing Principal, Alderidge Consulting
Director since 2009
David P. Holland
President and Chief Executive Officer
Torstar Corporation
Director since 2009
Paul R. Weiss
Corporate Director
Director since 2009
Phyllis Yaffe
Corporate Director
Director since 2009
Linda Hughes
Chancellor Emeritus, University of Alberta
Former Publisher, Edmonton Journal
Director since 2010
Dorothy Strachan
Partner, Strachan-Tomlinson Inc.
Director since 2013
TORSTAR CORPORATION 2013 ANNUAL REPORT 112
TORSTAR CORPORATION 2013 ANNUAL REPORT 113
N OT E S
2013
ANNUAL REPORT
TORSTAR CORPORATION 2013 ANNUAL REPORT 114
TORSTAR CORPORATION 2013 ANNUAL REPORT 115
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N OT E S
2013
ANNUAL REPORT
TRANSFER AGENT & REGISTRAR
CST Trust Company
P.O. Box 700
Postal Station B
Montreal, QC
H3B 3K3
AnswerLine (416) 682-3680 or
1-800-387-0825
(toll-free in North America)
www.canstockta.com
inquiries@canstockta.com
Torstar Class B non-voting shares are traded
on the Toronto Stock Exchange under the
symbol TS.B
CORPORATE OFFICE
One Yonge Street
Toronto, Ontario
Canada
M5E 1E6
Telephone: (416) 869-4010
Fax: (416) 869-4183
e-mail: torstar@torstar.ca
Website: www.torstar.com
OFFICERS OF TORSTAR
JOHN A. HONDERICH
Chair
DAVID P. HOLLAND
President and Chief
Executive Officer
LORENZO DEMARCHI
Executive Vice-President
and Chief Financial Officer
MARIE E. BEYETTE
Senior Vice-President,
General Counsel and
Corporate Secretary
PATRICIA HEWITT
Senior Vice-President
Human Resources
JENNIFER BARBER
Senior Vice-President Finance
D. TODD SMITH
Treasurer
TORSTAR CORPORATION 2013 ANNUAL REPORT 114
TORSTAR CORPORATION 2013 ANNUAL REPORT 115
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2013
ANNUAL REPORT
TORSTAR CORPORATION 2013 ANNUAL REPORT PB